Executive Vice Chairman Han Jin-hyun of the Korea International Trade Association (KITA). (Photo: KITA)

Korean companies need to strengthen their entry into emerging markets in order to reduce risks stemming from Korea’s high dependence on China, a report stated, titled “Study on Korea and Japan’s Strategies against China’s Risks and Implications.” It was issued by the Institute for International Trade under the umbrella of the Korea International Trade Association (KITA).

According to the report, Korean companies should adopt a “China Plus” strategy to ramp up their entry in emerging markets in consideration of the “Made in China 2025” strategy China is implementing following its conflicts with Korea over the installation of the U.S. Terminal High Altitude Area Defense (THAAD).

The Made in China 2025 strategy calls for China to raise self-sufficiency of core and parts technologies to 70 percent by 2025.

Korea and Japan have made every effort to reduce “China risks” but Korea is in a worse situation than Japan, it said.

As conflicts over the territorial rights of Senkaku Islands between China and Japan flared up in 2010, Japanese companies had adopted a “China Plus One” strategy to build an additional production center in regions other than China. The Japanese government had provided active support to export its own companies’ infrastructure to emerging countries through official development assistance (ODA).

Japan, which had focused on investing in Thailand, is recently diversifying the scope of investments to its neighboring countries such as Laos, Myanmar and Cambodia, which leads to the occurrence of a “Thailand Plus One” phenomenon in which a regime of division of labor is built in the Association of Southeast Asian Nations (ASEAN).

On the other hand, Korea is facing in a more serious crisis as China is implementing the Made in China 2025 strategy following its conflicts with Korea over the THAAD issue. China is now trying to localize core parts and technologies of the manufacturing industry since Korea’s intermediate products accounted for 78.9 percent of its total exports to China.

Korea’s portion of exports to China out of gross domestic product stands at 15.6 percent, twice more than Japan’s 7.5 percent. It means that if trade conflicts between the United States are prolonged in a long period, Korea’s implications rising from China risks would be greater.
The report said Vietnam emerges as a foremost alternative investment destination for Korean companies.

As Korean conglomerates such as Samsung and LG have increased investments in electric and electronics sectors, Korea has become the biggest investment country of Vietnam.

As Korea’s exports to Vietnam have doubled in the past three years, Vietnam has risen to Korea’s third biggest export country. Korean firm’s entries in other ASEAN countries, India and other emerging economies are on a constant rise, and the Korean government is backing up Korean companies’ strategies to diversify markets by adopting the “New South Policy” and “New North Policy” initiatives.

Researcher with the Institute for International Trade said, (Korea) should work out a “China Plus” strategy to brace for China’s Made in China 2025 policy effectively.

Korea needs to diversify Korean companies’ investments, focusing on Vietnam, to its neighboring countries to reduce risks of any specific country and readjust market entry strategies toward ASEAN countries to prepare for the economic integration of ASEAN such as the advent of the Asian Economic Community.