Korea and Japan suffer from Chinese competition

Korea and Japan suffer from Chinese competition

Samsung’s declining profits and a Japanese stock market slide show how Japan and Korea struggle with declining foreign demand and Chinese competition.

One of Korea’s biggest corporations, Samsung, announced that its second-quarter operating income has declined to a two-year low. For the three months ending on June 30, Samsung’s operating income was at 7.2 trillion won. This adds up to a 24% drop from the previous year, and is an even bigger drop than predicted by experts.

This is the third straight quarter that Samsung has seen a decline in profits. In this period, sales for the electronics giant fell 10%, while Samsung blamed lower-than-predicted profits on the Korean won, which appreciated against both the US dollar and the euro, reducing competitiveness of its products on foreign markets.

Samsung also cited a decline in demand from Europe and China as a factor, and mentioned growing challenges as Apple is expected to launch a competitive iPhone 6 model in the second half of this year. Samsung’s somewhat unsettling news follows a special visit from China’s President Xi Jingping to Seoul with Korea’s President Park Geun-hye, aimed at promoting Chinese-Korean commercial relations, with the two countries working on a free trade agreement.

In China, the Korean giant has had difficulties competing against local companies, which have seen tremendous growth. For example, the Chinese brand Huawei, based in Shenzhen in Southern China, is now the largest telecommunications equipment producer in the world, after having taken over Ericsson in 2012.

Besides Huawei, Lenovo and Xiaomi are also proving to be stiff competition for Samsung, which was once the world’s smart phone leader. All of the above-mentioned Chinese corporations produce mobile phones that are strong competitors in East Asia’s mobile phone market. This is worrying news for Samsung, 20% of whose revenue stems from the Chinese market.

Samsung’s struggles are also in line with region-wide news that stocks have failed to increase further, as Reuters reports that Asian stocks have flatlined at a three-year peak. Not far from Korean-based Samsung, Japan’s Nikkei .N225 fell 0.4% in the past month, while the Dow .DJI lost 0.3%, the S&P 500 .SPX lost 0.4%, and the Nasdaq .IXIC lost 0.8%.

Apart from a slide in stock prices in Japan, a consistent Japanese current-account surplus also demonstrates a decrease in Japanese exports – also reported to have come about as a result of a decline in global demand. Prime Minister Shinzo Abe has been pursuing depreciation in the Japanese Yen in order to increase exports, but export levels are still lower than they were before Abe came to power in 2012.

Both Korea and Japan are experiencing decreases in demand from foreign buyers, a lingering issue that first developed during the 2008 financial crisis. However, not only is demand from the West even lower, but increasingly powerful Chinese competitors may cause even more problems for the two nations. Lower Chinese prices will continue to entice buyers to avoid Japanese and Korean products, whose currencies have made their products less competitive abroad, as Samsung has experienced first hand in the past three financial quarters.

Categories: Asia Pacific, Economics

About Author

Margaux Schreurs

Margaux lives in Beijing and works as an editor at a Beijing-based magazine and website, and writes on a freelance basis for a wide range of publications throughout the world, mainly focusing on East and Southeast Asian current affairs. She is a London School of Economics and Political Science MSc graduate.