This paper deals with the development of automobile industry in Korea and Japan. This case is one of the successful history of industrial developments in the developing country proposed by Gerschenkron. The characteristics of the development of automo...
This paper deals with the development of automobile industry in Korea and Japan. This case is one of the successful history of industrial developments in the developing country proposed by Gerschenkron. The characteristics of the development of automobile industry and the industrial policies by these two countries are evaluated respectively based upon the Catching-Up Product Cycle model. The summaries of this paper are as follows.
First, in the process of the catching-up product cycle on the automobile industry, Japan and Korea experienced the stage of import substitution in the mid 1950s and in the early 1970s respectively. The export growth in automobile started in late 1960s in Japan and in the mid 1980s in Korea. However, the development of automobile industry in Japan has been a good example for that of Korea.
Second, in term of the development process of automobile industry, the experiences of these two countries are different. Korea has developed the industry without experiencing fully the stage of the import substitution.
Therefore, an increase in domestic market was followed by car export growth. In the meantime, the automobile industries have raised investment in improvement in technology using external borrowings. On the other hand, Japan has developed the industry through increasing in domestic demand followed rising in production. Also, a reduction in domestic demand was resolved by an increase in exports. The extent of the size of the domestic market and capital accumulation resulted in different experiences of these two countries.
Third, the development mechanisms of the industries in both countries are as follows. In the early stage of the industry, these two countries adopted a closed policy toward imports of foreign cars. In addition the government intensively allocated loans toward the industry with a low interest and preferential condition. For the improvement in productivity, the relationship between the central factory and the part factories is very important, so these two countries have improved the quality of the automobile and cut the production cost by adopting the competitive mechanism among part factories. In addition, these countries have continuously invested in R&D on the automobile industry. The strong relationship between the central and part factories and continuous investment in technology eventually contributed to improving the quality of automobile.
Fourth, although the development of the automobile industries in these countries have been successful, the industrial policy also incurred some adverse effects on their economies. The concentration of this industry has been traced so that the output of automobile is in the hands of a 'few large firms. The fundamental cause of this trend is the technique of mass production, which requires a heavy investment in equipment and tooling, and is therefore feasible only for a large organization. Once the technique is instituted, the resulting economies of scale give the large firm a commanding advantage, provided that the market can absorb the number of units that must be built to justify the investment. Even though these two countries have the same history of the industry, the development plan is a little different each other in terms of financing and accumulation of technology. Korea has intensively relied upon foreign technology and borrowing because the country's resource was relatively poor and the history of the industry is relatively short. On the other hand, japan's condition has been much better than Korea in the sense that Japan has had enough technology and capital from the early stage of the development of the automobile industry.
Fifth, the above studies provide some ideas for the further development of the automobile industry in Korea. To compete with the productivity level of the Japanese automobile industry, the Korean industries should emphasize on the improvement of technology, a reduction in production cost, an establishment of the optimal structure of the automobile supply, an encouragement of R&D in part factories, the expansion of domestic market, the well preparation against trade conflict, the close relation with developed countries, and initiating optimal policy for the industry.