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KIM Jung-Woo

Export Opportunities in the Global Recession

KIM Jung-Woo

Mar. 6, 2009

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Korea's exports, long the lynchpin of the economy, have begun to buckle from the weight of the global recession. Although they managed to maintain double-digit growth in 2008, rising 13.6%, exports slowed sharply in October, starting a skid that has gone unabated since November. The decline was the first time outbound shipments have posted negative growth since 2002 (with the exception of September 2007).

Along with falling exports, the proportion of exports by industry has also changed. Older mainstays like shipbuilding and petrochemicals have increased their share, while exports of IT products, which have been the vanguard of Korea's exports in recent years, have fallen. Semiconductors and automobiles, which had ranked first and second, respectively, dropped to fourth and fifth in 2008; and were replaced by ships and petrochemicals.

Conditions worsened in January. The top 20 export products (accounting for 71.4% of Korea's total exports), all retreated except for ships/offshore structures and associated components. The largest declines were posted by computers and automobiles/auto parts, which each dropped more than 50%. Overall, January exports fell a record 33.8% year-on-year, far more than the 19.5% and 17.9% drops year-on-year in November and December, respectively. Although shipments improved slightly in February, dropping 17.1%, exports of computers, automobiles and automotive parts were still down by 30-40%.

Adding to concerns is that the unit export price of IT products, including semiconductors and home appliances are falling along with the contraction of export volume. Even petrochemicals and steel products, which had maintained an upward trajectory, have suffered declines in unit export price since the second half of last year.

The fall in exports is mainly attributable to sharp downturns in Korea's major export markets, including China, the US, and Japan. The global recession alone (excluding other factors) is likely to lower Korea's exports by 10-20% in each industry in 2009, with IT devices, semiconductors, automobiles, and home appliances hit hardest.

Of course, the recent depreciation of the won has acted to positively affect exports by raising the price competitiveness of Korea's exports against their foreign counterparts. Nevertheless, in a situation where the global economic remains in the doldrums, if the won reverses its course in the second half of the year, as many analysts and officials predict, Korean products' price competitiveness abroad will be eroded.

Under these circumstances, the most urgent task for the nation's exporters is to stanch the decline in exports, although increasing exports should of course be the ultimate goal. First, it is necessary to identify which industries are in jeopardy the most. Industries that are expected to see relatively bigger drops in exports in 2009 are the IT, precision machinery, and automobiles. For these industries, a strategic and tailored approach is desirable to determine which export markets will experience the largest declines, and which export markets remain promising.

As of January 2009, Korean-made precision machinery exports to Japan, Germany, and Vietnam, increased with Vietnam seeing an 11-fold jump. In wireless telecommunications devices, exports to the US, Hong Kong and Mexico increased, with Mexico exhibiting a 78.1% increase. Automobiles exported to African countries, including Algeria, Jordan, and Libya, increased. Exports of home appliances, on the other hand, declined in nine of Korea's ten major importers, while exports to Brazil jumped 29%.

Second, with global demand expected to decline due to the global economic recession, companies will be best served by targeting markets with the best chance of rapid recovery. While targeting Asian countries and others that are likely to see relatively higher GDP growth in 2010 than in 2008, it will be also crucial to target all foreign countries that are likely to show higher economic growth as potential export destinations.

Third, since increasing unit export prices translate into export increases, it is critical to make high value-added products that offer higher unit export prices by making the best use of the resources available. Enhancing soft competitiveness in brand and design value to secure consumer loyalty will provide favorable returns when the economy is poor. Differentiated products that take into account consumer tastes and trends, and “convergence” products can also meet these demands.

Finally, it is important to take a long-term approach and bolster competitiveness in respective industries to prepare for the global economic recovery, rather than simply adopting ad hoc fixes. Just as the markets eventually rebounded in 1-2 years after the 1997 currency crisis and the collapse of the 2001 IT bubble, markets will eventually recover after this crisis as well.

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