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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