A Weak Yen Only Masks The Real Problem at Korean Chaebol

Recently, the Japanese Yen Has Weakened
Let’s broadly presume that for a variety of reasons, some justified, many not, the Japanese Yen has declined. For newbies, this means that a Japanese Yen buys less in the international marketplace. The flip side is that a foreign currency could buy more items whose price is stated in Japanese Yen terms. The implication is that when costs are in Japanese Yen, then a Japanese company would be more profitable. When applied to Korea, a stronger Korean Won would buy more products (like food and energy), and a weaker Won would make Korean-made products, like electronics and cars, more profitable for Korea-based companies.

“Threat” to Korean Exports? Maybe.
The FT blog beyondbrics attempted to make the case that the weaker Yen would be a threat to Korean exports. First, it is not clear that the Japanese Yen is really weaker. When compared to the Korean Won, 100 Japanese Yen buys approximately 140,000 Korean Won. In 2008, that same 100 Yen bought only 80,000 Korean Won. In other words, the Korean Won remains 75% weaker compared to the Yen now when compared to 2008. It is true that this ratio has moved from 150,000 to 140,000 as the European debt crisis has been “solved” (don’t get me started). But, the FT’s observation isn’t really accurate in the larger context of time, and especially when considering what has occurred during that time.

The Korean Economy Has Benefited The Most
Readers of this blog know the position of the Seoul Gyopo Guide: Korea has benefited greatly from the strong Japanese Yen. Not only are Korean products more profitable to Korean companies than Japan’s are to their companies, but those extra profits, when correctly deployed, have been converted to enormous advances in competitiveness. Look no further than Samsung Electronics and Hyundai-Kia Motors. Both were viable in the early 2000s. A decade later? Global front-runners. A weaker won led to outsized profits, which were used to create even more competitive products. A decade ago, a Hyundai Sonata was not perceived to be the equivalent of a Honda Accord. Today, they can be substituted at the same price, and in may circles, the Sonata is now a superior product. Now, the blindly patriotic may try to claim that the reason is Koreans are superior to the Japanese, etc. Please, spare me. We can debate how this occurred, i.e. how did Hyundai catch Honda? There are a number of different reasons. A weak Won has definitely made many of these reasons possible.

The Complainers Are Complaining For a Reason
Certain Korean companies are complaining, and the FT’s article points out that Korean exports may be hurt. That is obviously true, and not news-worthy in the least. That has occurred for the last decade to Japan, when its currency has been too strong. That is what occurs in the global marketplace all the time in the course of economic development. However, the real point here should be that Korean companies should have been much more efficient and competitive now. Korean exporters have been given a gift, supported by the Bank of Korea. In the past months, Korean exporters were surveyed, and many complained. To that complaint, the global marketplace will say “too bad, you have wasted a decade of opportunity, which you did not necessarily deserve,” and it will be correct. If a Korean exporter has not become more competitive during almost 10 years of an artificially weak Won, then it deserves its fate. Unfortunately for Korean employees, that is the harsh reality of the global economy, a place where Korean companies operate.

Why Is This Important?
Readers may rightfully ask, “Why does this blog continually beat this dead horse?” There is a very good reason. Korean companies have not been forced to become global leaders, due to weaknesses in corporate governance and lack of shareholder rights. Chaebol managements do as they see fit, and management is not put into the crucible of criticism that exists at every global company in the US. If management in a chaebol does not perform, there are few ramifications…except to the employees, who will face the loss of jobs. Until this changes, and the management of chaebol are required to become globally competitive in every aspect, Korean citizens will not participate in the gains that have been made, but will pay the price when the global marketplace turns away from Korea’s favor.
A weaker Yen is one of those factors. The weaker Yen simply highlights the weaknesses in Korea’s corporate structures and practices. Now, is this true at every company? Clearly, the answer is no. However, the Seoul Gyopo Guide suggests that even the global leaders (Hyundai-Kia, Samsung Electronics, Hyundai Heavy) have succeeded despite their corporate practices, not because of them.