Korea, Competition for Taiwan?

I’ve seen some blog posts on Korea recently.  I can’t seem to make my point in the comments section, so I’ll do it in my own blog.

People are talking about GDP, chaebols and all the things that really do not matter in the Taiwan-Korea shootout.  It comes down to something else.

My wife and I own an outsourcing company.  We make our living selling products made in Asia for cheaper prices than can be made back in the Customers’ home countries.  I am going to talk about Taiwan and Korea from the viewpoint of someone who makes their living in manufacturing.  I promise I won’t have any boring statistics.

There is a huge farm in Taiwan’s backyard.  The people there work for less, there is lots of land and they speak the same language (more or less).  This place is China and the Taiwanese have had the home-court advantage with development of China since the Chinese first woke up to the opportunity that they can make stuff for other countries and get paid for it.

On the other hand, Korea is like a Taiwan, but without a place to make products cheaply like Taiwan has, unless they use China.  Korea is at a distinct disadvantage there, namely because the Chinese don’t like them very much and they don’t have a common language.  Nevertheless, these obstacles can be overcome of course.  But the Koreans will never have a foothold into China like the Taiwanese do.  In some cases the Koreans are going through Taiwanese companies in China.  The more that Taiwanese control the Chinese manufacturing base, the more likely it will be that outsiders aren’t dealing directly with Chinese, but going through Taiwanese.

If you want to buy a Goldstar DVD player, its most likely made in Korea, on the home turf.  If you want to buy a Sampo DVD player, that puppy will be made in China.  The Koreans may be facing the same problem and have to do what the Japanese did during the 80s, which was to dump products at the expense of the domestic market.  I’m not sure how well this is understood by other bloggers, but I lived through that era and studied Japanese manufacturing practices in the 80s when I was an engineer for Pacific Scientific.  Taiwan doesn’t have to earn money by selling domestic products to the homeland at several times the going rate in order to finance the loss-leader dumping practices of Japan did.  Taiwan has China to do the manufacturing.

The next thing that I am going to say is uncomplimentary, but unfortunately true.  None of the agents that I know will order any parts from Korea.  None of them.  I know a lot of supply agents in the field and they all say the same thing “Korean suppliers cannot be trusted.”  This is, I believe, currently the main difference between Taiwan and Korea – the perception of quality.  Taiwan has a reputation that is nearly on a par with Japan these days, regarding quality and integrity of manufacturing.  Taiwan sources US military parts that are forbidden to be made elsewhere in Asia (I know because I supplied them from here).  Therefore, Taiwan gets more contract manufactured parts orders than Korea would get if their reputation weren’t tarnished so badly.  Truthfully, I have heard nothing but bad and I’ve had other suppliers name company names, places and dates.  I know the stories are true.  I believe that it is with this contract manufacturing supply that Taiwan has the advantage over Korean.  When talking about production numbers, I am not sure if the contract manufactured income is differentiated from product production.  The interesting thing about many Taiwanese companies is that while they have their own product line and produce finished products, they use their factory capacity to make parts for Customers.  These parts have nothing to do with their own products but they make whatever they can in their factories to earn money.  Smart.  Eventually Korean suppliers will smarten up too.

China woke up.  Vietnam woke up.  Cambodia and Laos have also woken up to the sound of foreign tourist money and investment.  Yet, none of these countries have budged on their Communist roots and authoritarian views.  Its unlikely that they will either.  There really isn’t any reason to.  They will continue to open up in areas that make sense to gain investment money and tourism, manufacturing, food and raw material exporting etc.  So the question is:

When will North Korea wake up and smell the cash?

My guess is “sooner than you think.”  They aren’t letting on.  You won’t know when it’s going to happen until it does because it won’t require any shift in ideology.  There doesn’t have to be a coup or free elections.  All they have to do is open “talks” with the South and the process begins.  When that happens, Korea will have an advantage in a manufacturing base that will be leaner and more aggressive than any Taiwanese developed system could ever be because it will be more or less a Japanese based system of production.  That will be the day that Taiwan should fear.

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6 comments

  1. Interesting thoughts. However, I’m less concerned about Korea than I am about China itself.

    From what I have seen, the number of grad students here in the US are more from China than TW. While it may not be scientific fact, that was my perception at UCI.

    Before when I heard chinese spoken on the street, it was usually by TW accent. However, lately walking on the streets, I hear mostly mainland accent.

    Obviously as more and more mainlanders come to US for education or work, a portion of those will return to China. As more and more of these people return, my concern is that eventually China will have the ability to interact with western world w/o using TW as the gateway.

    But now in TW since politics trumps all else, opportunity is rapidly passing.

  2. Louis, thanks for your comments. seems as if my viewpoints about North Korea aren’t so off base after all. understand that i don’t read up on or study these topics – i live them and i’m only saying that i know.

    the Japanese pioneered a lean system of manufacturing that used to be called Just In Time. JIT has now been replaced with Synchronous Flow Manufacturing. the Koreans know it well and it is almost the opposite of the Chinese family run business style. naturally, if the Koreans build factories, they aren’t going to use the inefficient Chinese style of management, where often their own cost structures aren’t even known due to primitive accounting methods. i contend (and predict) that South Korean built factories in the North will kick the crap out of everyone else and will rewrite the outsourcing game. the next 10 years certainly will be interesting!

    i’m happy to hear that there are career minded, goal-oriented youths at your university. back in New Hampshire, seems like all the young men wanted to do was get high.

    your comments about the Taiwanese students don’t surprise me, unfortunately. its about getting the degree, not acquiring the knowledge.

    thanks Louis.

  3. If you want to buy a Goldstar DVD player, its most likely made in Korea, on the home turf. If you want to buy a Sampo DVD player, that puppy will be made in China.

    Sampo is not a Korean firm but a Taiwan firm, and many of their DVDs are still made here.

  4. Michael, i was comparing Sampo and Goldstar. Sampo is Taiwanese and Goldstar is Korean. Some time ago Sampo moved their build operations to China. if you find a Sampo DVD player in Taiwan its new old stock.

  5. anon, well that is the goal of China, to become self reliant with the need for no one else. they absolutely will be able to interact with the Western world without using TW as a gateway. good thing that many of those companies are already Taiwanese owned.

    in the meantime, US youths are smoking pot and getting tattoos while the future of the country slips by.

  6. Firstly, South Korea is outsourcing, and has been doing so since the financial crisis.

    Secondly, regarding North Korea, the Kim regime is very sensitive and has fed the North Koreans many lies, to the point that Kim’s legitimacy is dependent on maintaining the notion that the rest of the world — especially South Korea — is in a horrible state, far worse than they are. I am not saying they won’t open up, but I don’t think it will be so simple, for the juche ideology is not that flexible.

    There is some bright light at the end of the tunnel, however. The last I heard informal petty-items markets are functioning throughout North Korea, where food and commodities can be sold for a profit! And South Korean factories are running in industrial parks in North Korea — with the majority failing, and some apparently making it work.
    Maybe your right — the next ten years will surely be interesting.

    I am curious what “Japanese based system of production” refers to. I have come across similar statements but they are never explained sufficiently.

    Also, I am an American university student at the university of Washington and — contrary to your assumption — I find the majority of my peers to be diligent, hard-working, goal-oriented students.

    Not unlike the previous comment, I also have observed an increase in the number of Mainlanders. And through comparison with the majority of Taiwanese students a stark contrast becomes obviously apparent: the Mainland students are generally graduate students who speak English very well. On the other hand, the majority of the Taiwanese students are taking TOFL prep-classes (I was a TA in one of these classes), and are years behind having what I consider working-academic English; they seem more concerned with having fun and spending money than getting ahead (there are, of course, exceptions).

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