Automobile Industry: Korean and Japanese Business Practices

Abstract As the automobile industry has become increasingly global, the rapidly growing industry in Asia and particularly in Korea and Japan has attracted our attention. Korea is now recognized as a prospective growth region for the automobile industry in the twenty-first century, with its potential to be the world's largest automobile producer. The automobile industry in Japan has reached maturity and has almost no growth potential. However, although Korea has seen remarkable industrialization and economic growth from the 1960s onwards, steady progress is not always guaranteed – as seen during the current crisis – and this holds equally true in the automobile industry.

The South Korean automobile industry has an overproduction capacity of nearly 1 million cars annually. During the economic crisis, most of the automobile manufacturers reduced production. Now there are signs that the financial order of the Asian region is starting to stabilize and recover. Japanese, European, and United States automobile manufacturers have started to increase production in the region again. Sooner or later, it is expected that the automobile industry in Korea will be revived. With this in mind, a decision was taken to focus on the Korean automobile industry and compare with Japanese automobile industry.

Introduction Now it is unbelievable that one of the poorest countries in Asia during the lifetime of one generation will become an industrial power of global significance. In those days it seemed a great achievement by making Kia in 1952, the first Korean ... bicycle, and the left lane on the streets of Korean cities was designed exclusively for horse-drawn transport - bullock teams. Less than half a century, and the same Kia has become one of the leading automobile companies in the world, and Korea in terms of car production into fifth place in the world.

The most attractive feature of Korean cars was a combination of low price with acceptable quality. For the car around in the same class but manufactured in Japan the buyer would pay a much larger amount. Thus, Korean automobile manufacturers nowadays do represent a serious threat to their Japanese colleagues in a long run.

Evolution of Japanese and Korean automobile industry In 1909, Japanese auto industry finished the invention of car and since then they can make their own cars (Xue Yan Inspiration from Japanese Auto Industry, 2010). But the domestic auto industry was in depression and in 1918; Japanese government gave subsidy to the people who buy the domestic automobiles. Because of this policy, Japan auto industry became much better than before but still had a large deficit.

In 1936, Japan established a policy that forbade produce foreign cars. But it was not useful enough for the whole industry. The real development time of Japanese auto industry appeared after the Second World War. United Nations did not allow Japanese manufacturers to produce aviation equipment, so many of the technical staffs turned to auto industry. In this period, Japanese auto industry mastered the advanced manufacturing technology. In 1970, Japan started to export cars to other countries. It only took 25 years for Japan to go global.

But in 2000, because of the decrease of population and labor in Japan, the domestic sales volume dropped significantly. While the sales volume in other countries increased a lot. In 1980, Japan produced 11.04 million cars; that number was greater than the number of cars produced in the United States (Siyun Lin, Japanese Economic Plan, 2003). Japan became the world’s first automobile superpower. The main auto manufacturers in Japan are Toyota, Honda, Nissan, and Mazda. But after 2000, the quality of Japanese cars became worse than before, it shocked people’s trust on ‘Made in Japan’. With some other reasons, as the development of auto industry in other countries, Japanese auto industry lost some of the world’s market shares.

But the competitiveness power of the auto industry in Japan is still very large. Compared with Japanese auto industry, Korean’s started late. Since 1950s, Korean auto industry appeared, and till to 1960s, Koreans can produce their own cars. In 1962, Korean government established ‘The auto industry five-year plan’, later; government established ‘The auto industry protection law’ to restrict the import of cars and mechanical parts from other countries.

Then in 1974, government drew up a plan of the auto industry development. These policies and plans really inspired the Korean car manufacturers (Xinlong Ji, The Development of Korean Auto Industry, 2011). In 1967, Korean took a part in GATT (General Agreement on Tariffs and Trade) and in 1995, Korean joint WTO, the overseas market and the financial, investment, trading and technical markets provided a lot of convenience for Korean cars export. Korean government made the specific plans for every period of the development of auto industry.

They required developing the auto industry to the main industry in Korea. As for the foreign capital aspects, Korean government can revise their plans if it is necessary, they tried to make use of foreign capital effectively to serve for the domestic auto industry. Now, the main manufacturers in Korea are Hyundai, KIA and Daewoo. They are not only the main manufacturers in Korea, but also still play an important role all over the world (Longye Song, Korean Auto Industry and Kwangju Experience, 2007). Although Korean auto industry started late than the other big auto manufacturing countries, Korean auto industry is charging large market share around the world.

Current Market Position of Korean and Japanese Automobile Companies Nowadays, Korean automobiles are becoming increasingly competitive and keeping a rapid growth rate and also the market share, which can be hardly ignored. They offer 10-year warranties and considered the quality of cars as the emphasis. As a result, more and more people admire their cars. Currently, the Korean automobile industry ranks fifth in terms of production volume and the sixth largest in terms of export volume in the world. Korea is now among the most advanced automobile-producing countries in the world.

Though the Korean automobile history is not so developed, Korea’s automakers are trying hard to get rid of the weak brand image and keep abreast with Japan’s and the Detroit Big Three(General Motors, and Chrysler). As a matter of fact, Kia and Hyundai are already became stars of middle Asian and Russian markets, overcoming Japanese manufacturers. When we mention Japanese automobile, people will probably not consider it as reliable, low maintenance and with good quality any more.

It is well known that Japanese automotive industry is one of the most prominent industries in the world. However, Japanese vehicles have also changed the current aspirations on its admired stable quality. From 2006 to 2008, Japan was the world's largest vehicle manufacturer, but it lost one rank to current leader China since 2009. Even in the 1990s, Japan can already produce very affordable, reliable, and popular cars (Bunkley Nick, "G.M. Says Toyota Has Lead in Global Sales Race", 2010). However, particularly due to old and new competition from South Korea, China and India, its market share has decreased in recent years.

Also the earthquake and tsunami in Japan disrupted its production. But the demand of automobile in the US, China and Asia continues to recover, so an increasing number of customers are disappointed, they find that there are not enough Japanese cars. Consequently, the Japanese car makers are losing market share to American, European and South Korean car companies. Nevertheless, Japan is the third largest automobile market and the second largest car producer in the world. But the challenge is to keep the position in the long run.

The two countries are competing with each other in automobile industry, like a part of their economic race. For the last decade, we all have seen the significant development in the technology field of both Korean and Japanese car manufacturers but consumers’ preferences keep switching to the Korean cars. What are the current prospects for the Korean auto industry? In short, it is very encouraging. In 2010, Korea ranked fifth in the world in production of cars - after the United States, Japan, Germany and France. According to some data, last year it was produced 3,114,908 vehicles (capacity of Korean plants can produce up to 4,332,000 units per year).

The expansion in foreign markets has been increased as well. In 2010, Hyundai sales in the U.S. rose by 37%, while sales of Kia (now - a subsidiary of Hyundai) - generally 70% (Benjamin Daniel K., “Voluntary Export Restraints on Automobiles”, 2008). This is largely due to the change of Korean automakers strategies and technological advances. In general, Korean cars are highly valued and are cheaper than their Japanese counterparts, even the gap in price is much less than ten years ago.

Changing trends Japan loses its position as the world’s top-selling Asian carmaker. There are several factors that lead to the loosing of Toyota’s habitual position. First of all recently Toyota announces recalls of its automobiles very frequently. Only over the last 2 years 14 million vehicles have been recalled due to concerns of carmakers with quality control during build phase. The majority of cars were recalled due to potential steering problem. In 2009 Toyota announced the largest recall in the USA history: it recalled 3.8 million cars to appeal the problem with a removable floor mat that could bring about accelerators to get stuck and lead to a crash (Mike Ramsey and Doron Levin, “Toyota’s U.S. Dealers May Lose $2.47 Billion a Month”).

However due to reports from recent accidents there can be problem not with floor mat, but with electronic problems or on-board computer glitches. But Toyota strongly denied this claim Owing to the frequent recalls and indefinite problems with its vehicles Toyota’s reputation for quality was no longer the differentiating factor that it had been for many years. Secondly, the Toyota’s position staggered after Japan’s earthquake and tsunami. As world's number one car maker in 2010 Toyota sold 8.42million vehicles, outrunning General Motors that sold 8.39 million automobiles.

Toyota’s quarterly profit decreased more than 75% after the Fukushima Nuclear Accident (Koichi Uetake, "Japan faces uphill battle", The Daily Yomiur). The amount of car produced by Toyota would fall to around 6 million due to disrupted production. However Japanese automakers have nearly fully recovered — earlier than expected — and the level of production has returned to pre-quake levels. South Korean producers strengthen their position in the automobile industry.

Due to having virtual monopoly in the domestic market Korean automobile producers increased its market share in the world. Hyundai reached its 4th position in the world automobile producer’s ranking along with Kia Motors, after Toyota Motors, General Motors and Volkswagen (Lee Jun Bok,”Hyundai's at the top of its game; Company posts record profits for 2009 and is set to raise its brand recognition even more”, The Straits Times).

Previously Honda was viewed as cheap automobiles with poor quality, however nowadays this concept was totally changed. Even though Honda still has comparably lower prices than other automobile producers, it became highly competitive in the automobile market. As a good example of Hyundai’s competitiveness is the production of the Genesis luxury line, that received a great amount of awards including North American Car of the Year in 2009 (Michael McDermott, “Korean auto producers: Asia's next major force in Europe”).

Although considered to be inferior in the past, Korea has a big deal of changes to meet the best manufacturing standards in the world. It was a great leap in development of the Korean automobile industry. From the example of Japan, Korean automobile producers realized that they will have advantage in quality and innovation if they will be in close interaction with the automobile part makers. While South Korean car manufacturer heavily rely on the lower cost of their vehicles, they are simultaneously working on the full speed on the differentiation their products from existing ones, which threaten established industry forces, including Japanese automobile manufacturers.

Conclusion Actually, Japanese manufacturers are keeping leading positions, even though theya are facing quality control problems. At the same time Korean automobile companies have little choice. Wages in the country are very close to Western European or North American, so its former competitive advantage - cheap labor - is almost lost. In addition, a considerable potential threat is the "Asian Tigers" - Malaysia, Thailand, and especially China.

They could repeat the success of Korea, and, relying on their own cheap labor force prevail under Korea. This risk is well understood and therefore, the Korean car companies are trying to withdraw part of its production abroad to improve the structure and design of their cars to compete with Japanese and American firms in the market and the quality of more expensive models. Will they succeed or not – nobody knows, but so far, it seems, there are some reasons for optimism.

References:

1. Xue Yan, “Inspiration from Japanese Auto Industry”, 2010 2. Siyun Lin, “Japanese Economic Plan”, 2003 3. Xinlong Ji, “The Development of Korean Auto Industry”, 2011 4. Longye Song, “Korean Auto Industry and Kwangju Experience”, 2007 5. Bunkley Nick, "G.M. Says Toyota Has Lead in Global Sales Race", The New York Times, 2010 6. Benjamin Daniel K., “Voluntary Export Restraints on Automobiles” PERC Reports: Volume 17, No.

3. Property & Environment Research Center. 2008 7. Koichi Uetake, "Japan faces uphill battle", The Daily Yomiur 8. Lee Jun Bok,”Hyundai's at the top of its game; Company posts record profits for 2009 and is set to raise its brand recognition even more”, The Straits Times, “GROWTH OF S. KOREAN AUTO INDUSTRY TO SLOW IN 2012: GOV'T REPORT”, 2010 9. Mike Ramsey and Doron Levin, “Toyota’s U.S. Dealers May Lose $2.47 Billion a Month”, 2007 10. Michael McDermott, “Korean auto producers: Asia's next major force in Europe”, 2009