China as Global Market? – Korean Companies at Crisis
March 17, 2014

Korean companies are being squeezed out of the Chinese market, and those who those who were once reputed as premium brands have also been downgraded to ‘mediocrity’. Additionally, Korean companies are being chased after by Chinese companies in the retail market and by Japanese and German companies in the intermediary products market. Some even contend that “the only surviving Korean companies in China are Samsung Electronics and Hyundai Motors”, raising a voice of concern. From leading Korean conglomerates such as LG Electronics, Doosan Infracore, Emart, SK, and Hanhwa, to other successful companies such as Paris Baguette and Orion, all have been facing difficulties.

Analysts suggest three reasons for why Korean companies are struggling in the Chinese market. First of all, China has lost global competitiveness as production costs soar. Most Korean companies that enter Chinese market make profits from the export market, not from the local consumption market. Korean companies have benefited from the export market based on tax benefits from the local governments as well as inexpensive rent and labor costs. As the Chinese economy developed, such benefits have disappeared.

Secondly, the Chinese government changed its stance toward foreign capital firms. The Chinese government has provided generous support to attract the foreign investment. However, once the funds flow into the companies, they must endure significant government intervention. Also, the benefits to the foreign firms have completely disappeared. In the past, the Chinese government has seldom received rent for the land and exempted corporate tax for 3-5 years. However, local governments recently allowed these beneficiaries only for some of high-tech companies. The government seems to be reluctant to invest in traditional industries.

In addition, Chinese companies have become relatively competitive. Out of the top Fortune 500 companies, 95 Chinese companies were listed and 14 companies from Korea have listed. The gap of business scale is even more widened, which is in turn presented as the gap of competitiveness. Chinese electronics retailers such as Suning Dianqi (苏宁电器) and Gomei (国美) have grown as giant corporations based on their domestic market dominance. In particular, Suning Dianqi achived CNY 232.70 billion worth of revenue, outperforming China’s top home appliance retailer, Haier (海尔). Due to these two giant retailers’ market dominance, Samsung Electronics is now having difficulties in establishing the independent retail network.

CKGSB Dean Xiang Bing said that “Since Chinese companies are based on the vast domestic market, there are many paths for Chinese firms to turn themselves into global companies” and that “this can be the great advantage for Chinese firms compared to those from Korea and Japan”.

Read China as Global Market? – Korean Companies at Crisis on the Monthly JoongAng website

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