The Growing High-Tech Trade and Investment between Korea and China, and New Challenge for Korean Firms
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In recent years, the share of high technology products in the bilateral trade between Korea and China is rising rapidly. The most of Korea's trade surplus with China now comes from the high technology products. Furthermore, as Korea makes more IT investment in China, the bilateral trade in IT products and parts increases. So it seems to indicate that the increased IT investment is reinforcing the 'investment-trade expansion tie' between Korea and China in the high-tech industry. However, as China advances to the high-tech industry, it causes both opportunities and threats to Korean firms. It has increased Korean export of high-tech components to China, but at the same time it has led Korean firms to face more competition with China's high technology products in the world market. Yet, the real challenge for Korean firms is to maintain the division of labor with China. Many of the firms that supply the intermediate goods to China are losing their grounds because they lack strategy to maintain the division of labor with China. This has already occurred in the mobile phone industry, and it may spread to other high-tech industries. The weakening division of labor may even threaten the current Korean trade surplus with China. It is essential for Korean firms to approach China from the perspective of global production network. They need a new strategy to actively participate in the global production network by achieving their own innovative capability and strengthening their technological superiority in the high-tech intermediate goods over China. In other words, they need to change their production oriented business model to R&D oriented strategy by specializing in R&D operation of the value chain in the global production network. This way they will be assured that they will not lose out in the midst of rising China's high-tech industry. The time is not waiting for Korean firms because China is catching up fast to substitute the import of high-tech intermediate goods from Korea. However, China's expanding market for key parts and materials in the high-tech industry still can offer Korean firms the second chance to participate in the division of labor with China. Also, by using this opportunity to develop the high-tech intermediate goods industries, Korea can succeed in maintaining the trade surplus with China.
Abstract
In recent years, the share of high technology products in the bilateral trade between Korea and China is rising rapidly. The most of Korea's trade surplus with China now comes from the high technology products. Furthermore, as Korea makes more IT investment in China, the bilateral trade in IT products and parts increases. So it seems to indicate that the increased IT investment is reinforcing the 'investment-trade expansion tie' between Korea and China in the high-tech industry. However, as China advances to the high-tech industry, it causes both opportunities and threats to Korean firms. It has increased Korean export of high-tech components to China, but at the same time it has led Korean firms to face more competition with China's high technology products in the world market. Yet, the real challenge for Korean firms is to maintain the division of labor with China. Many of the firms that supply the intermediate goods to China are losing their grounds because they lack strategy to maintain the division of labor with China. This has already occurred in the mobile phone industry, and it may spread to other high-tech industries. The weakening division of labor may even threaten the current Korean trade surplus with China. It is essential for Korean firms to approach China from the perspective of global production network. They need a new strategy to actively participate in the global production network by achieving their own innovative capability and strengthening their technological superiority in the high-tech intermediate goods over China. In other words, they need to change their production oriented business model to R&D oriented strategy by specializing in R&D operation of the value chain in the global production network. This way they will be assured that they will not lose out in the midst of rising China's high-tech industry. The time is not waiting for Korean firms because China is catching up fast to substitute the import of high-tech intermediate goods from Korea. However, China's expanding market for key parts and materials in the high-tech industry still can offer Korean firms the second chance to participate in the division of labor with China. Also, by using this opportunity to develop the high-tech intermediate goods industries, Korea can succeed in maintaining the trade surplus with China.
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