How is business in the global printed circuits industry and packaging industry around the world? Well, sales have increased steadily since this past February. Second quarter sales also trended upward, but results were modest compared to the spike in the previous months.
Growth rates for the same months compared to the same months in 2008 are dismal…coming in at a double digit decrease.
Meanwhile, one country is bucking this trend and seems to be on the road to economic recovery. There is a flurry of activity within the Korean printed circuit and packaging industry.
The Korean economy suffered through the financial meltdown last fall, but now the two words predominant in industry are “Buy Korean”. Those of us that have been around for a while can remember a similar catch phrase, “Buy American”.
Sometimes, business owners had no choice.
Procurement regulations for U.S. companies mandated buyers purchase materials from domestic suppliers if the end product is for public use, especially military applications.
This regulation protected domestic suppliers’ business from shifting to less expensive imported products. The regulation directed business solely to American companies. Since competition was eliminated from oversees markets, prices increased while product quality decreased.
“Buy Korean” is a promotional catch phrase only and is not backed by any regulation or laws. Korean electronics companies imported many components, materials and equipment from Japan, because they did not have the capability to produce the same quality products as their Japanese counterparts.
Today, Korean electronics companies are very competitive in the global market, and infuse a lot of foreign currency into the Korean economy (the Won is out of favor).
Prior to the “Buy Korean” campaign, Korean companies purchased imported materials from Japan using US dollars. The Korean government attempted to persuade a few of the major electronics groups such as Samsung Electronics and LG Electronics to purchase materials from domestic companies so their foreign currencies remained in Korean circulation.
Unfortunately, most of the domestic manufacturers were small companies that lacked the means to develop the same quality materials as the Japanese vendors. It was time for a change, and the electronics giants developed a strategy for material manufacturers, component manufacturers and printed circuit manufacturers.
These electronics giants supported them with remarkable amounts of money and provided companies with R&D engineers to improve the quality of materials and enlarge manufacturing capacities.
The plan worked, and the industry has made significant progresses over the last few years with the quality of products from Korean printed circuit companies and material suppliers now being almost equivalent to those similar products produced by Japanese companies.
However, we must also look at currency markets and its impact on these Korean companies. In part, some of their success is a result of the depreciation in the won compared to foreign currencies.
The value of the Korean won compared to the Japanese yen decreased by 50% during the year. Korean manufacturers now purchase materials from domestic manufacturers at a lower cost than they can if they were to buy from Japan.
Consumer electronics devices such as cellular phones and flat panel TVs continue to become more competitive in the global market in terms of price and quality. Most sales for these products have shifted to Korean electronics companies, and they switched from Japanese vendors to Korean since costs are lower.
This shift in business is very dramatic. For example, a larger-sized LCD manufacturer used to purchase more than 80% of its driver substrates from Japanese manufacturers in 2008. This percentage is now less than 20%.
The Korean won will likely appreciate in the future and maybe business will return to Japan. The basic remedy for success is to keep prices low and provide quality products.
There is a lot of luck in business. However, I believe the harder you work the luckier you get.
Source: EPT Newsletter, VentureOutsource.com, July 2009
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