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Management Report

Management reports, briefs and video-clips issued by Samsung Economic Research Institute

Korean Footwear Industry Taking Another Leap Forward

Korean Footwear Industry Taking Another Leap Forward

KIM Won-So

Feb. 15, 2011

Transcript

Welcome to our video program. I’m Won-So Kim from the technology and industry department.

Have you ever heard about Masai Walking Shoes? Anyone who’s serious about their walking will instantly know what I’m talking about.

That’s right. The famous round bottomed shoes. These shoes are the result of an invention that applied human factor engineering to the walking of the Masai people of Africa. Do you know where the inventor of the shoes, Karl Muller, got his inspiration? You might think “from the Masai tribe,” but you would be wrong. Surprisingly, what motivated his invention were Korea’s rice paddies.

Muller married a Korean woman in the 1980s, and had a unique experience where the pain in his back and legs was alleviated when he walked around rice paddies near his house. Back in his native country, Muller performed research to come up with something that provided the same effect, and gained insight from the walking method of the Masai. This was how Masai Walking Shoes came into being. The R&D headquarters of Swiss Masai are now in Korea.

Korea’s foot wear industry is on the verge of a boom. The industry has long been regarded as a “sunset industry, but various functional footwear products like the Masai walking shoe are giving the industry a new boost. Today, I’d like to talk about new prospects for the Korean footwear industry.

The history of Korea’s footwear industry is like the story of a returning hero. The industry enjoyed its salad days in the 70s and 80s, when it accounted for up to 6% of Korea's exports. In the 90s, the industry began a decline that lasted for 15 years as factories moved to China and Southeast Asia in pursuit of lower labor costs. In 2005, however, the industry bottomed out and began to regroup, and posted an average annual growth rate of over 6% during the 2005-2008 period. There are two key factors that have helped turn the industry around.

First, a market was created for functional shoes that provide multiple functions. You can find all kinds of functional shoes nowadays. There are dozens of shoes available under the “walking shoe” category alone: including shoes designed only for walking on Olle hiking trails on Jeju Island, shoes for pregnant women, and shoes that help you lose weight.

“Toning shoes” refers to shoes that correct your posture, like the Masai shoes. The toning shoes market has grown fast in recent years as walking started to gain popularity as an exercise. Not missing the chance to boost sales, the industry is responding quickly by making more specialized products.

For example, there is a group of researchers from the oriental medicine and IT fields who are working on new shoes that enhance brain activities by stimulating acupuncture points.

Second, the export structure has changed in the component sector.

Although Korean shoe makers have moved their factories abroad, research and development still takes place in Korea. They need various samples and models during the research phase before putting out a new product.

Naturally, during this phase, component makers become involved in research. This process has helped improve the competitiveness of Korean component makers. Even though mass production occurs at overseas factories, Korean components are used for products because they are considered from the development phase, thus increasing exports.

But complacency should be avoided. Challenges posed by global brands and up-andcoming new companies are formidable. To take the next leap forward, the Korean footwear industry needs a star player that appeals to consumers around the world.

For now, 50% of the international footwear market is dominated by five global brands including Nike and Adidas. They are expanding further through M&A. Adidas acquired Reebok in 2005, and PPR, a French international holding company for luxury brands like GUCCI and Bottega Veneta bought PUMA in 2007.

The importance of brands is growing because global brands rule the functional shoes market. It is not an overstatement that Korean makers are pioneers in this market. US makers, however, are increasingly taking over with their strong brands. Reebok and Sketchers came in as late as 2009, but the power of their brand was enough to achieve an 8-fold increase in sales in just one year.

Recently, FILA Korea acquired the global FILA brand in 2007 to establish itself as a Korean brand on the global stage. But it is not easy to grow a new brand. As a solution, various brand strategies like co-branding or private branding (PB) can be used. Benetton started out as a co-brand among Italian merchants.

Next, it is important secure leadership in the fields of eco-friendly materials and cutting- edge components. Materials are very important for comfort and stability in shoes. For example, the shoes and clothing fabric brand GORE-TEX has cemented its status in the market, and the brand logo now determines the value of shoes or clothing, as the company only supplies materials to companies that pass their strict tests.

Among domestic companies, Sung Shin New Materials invented a technology to manufacture shoe midsoles using an injection method, rather than a traditional press, thus reducing 20 manufacturing processes to three. Improved productivity has helped the company to expand its global market share for high-end sports shoes to more than 10%.

The biggest concern regarding shoes materials is that they become pollutants, as it takes more than 100 years for them to be decomposed. Now, many nations are focusing on developing biodegradable materials. Most of these, however, do not yet perform at acceptable levels, and thus Korean companies will need to do more work here.

Lastly, cutting-edge components have become important materials for shoes. Nike has recently launched Nike GPS+ which syncs with MP3s and Smartphones to provide maps and track user’s running records. In 2011, the company plans to introduce a navigation watch for runners in cooperation with the GPS company TomTom. Since Korea is a major player in IT products, these kinds of footwear enhancements are an area that Korean shoe makers can succeed in.

I’ve talked about how the Korean footwear industry made a comeback. I hope this can be an example to other so called sunset industries that they can capture new opportunities by reading the latest trends in society and culture.

Thank you for watching. I’m Won-So Kim.

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