* April exports seen up but largely on calendar effect
* South Korean exports lagging behind global growth
* More structural weakness than yen's slide to blame
* Wake-up call for new president's push for rebalancing
By Choonsik Yoo
SEOUL, April 30 Korea Inc., like Japan 20 years
ago, is hollowing out. Exporters like Samsung Electronics
are shifting more and more production offshore,
changing the shape of Korea's economy and the role it plays
The trend means concerns about how the slump in the yen
might impact Korea may be overdone and the exchange rate, which
is making Japanese exports cheaper, could instead support the
aims of the new president in Seoul to shift policy away from
favouring exporters more towards domestic service industries.
"The slowing growth in exports appears inevitable and makes
it all the more important for the country to strengthen the
service sector, which already has been and will be the main
provider of jobs going forward," said Jun Min-kyoo, economist at
Korea Investment & Securities.
"As we have seen in recent years, high economic growth led
by star-performing exporters no longer makes due contribution to
boosting domestic employment and household income," Jun added.
Korean exports, still seen as the bedrock for the economy,
have underperformed global trends for the past two years. Data
for April, due on Wednesday, is expected to show exporters still
struggling for significant growth.
The median forecast in a Reuters survey of 17 analysts
suggested exports rose 2.4 percent in April from a year earlier,
a far cry from the regular double-digit growth seen in past
years. Reuters calculations show calendar-adjusted exports
probably fell about 6 percent in April.
Underlining the sluggish trend, figures on Tuesday said
March industrial output defied expectations for a rise to fall
for the third month running.
Korea still relies heavily on trade. Exports amounted to 56
percent of 2011 GDP, far above Japan's 15 percent or an average
of 29 percent for the 34-countries in the Organisation for
Economic Co-operation and Development (OECD), OECD data shows.
With export products ranging from mobile telephones, to
autos, to flat screens and various electronics, Korea has long
been a bellwether of global demand. But that role is on the wane
as companies shift more of their core overseas.
Central bank data shows South Korea companies have
quadrupled overseas direct investment in the six years since
2006 to nearly $200 billion last year, partly to shift
production to lower-cost bases or closer to consumer markets.
More than 80 percent of mobile phones sold globally by South
Korean vendors, including Samsung, were made outside the country
last year compared with 58 percent in 2008, the National IT
Industry Promotion Agency said.
Automaker Hyundai Motor more than doubled its
global sales in eight years through 2012, but last year it
produced just 43 percent of its total output within South Korea,
down from almost half in 2004, the company's data shows.
The 1.4 percent fall in South Korean exports last year was
already worse than a 0.5 percent drop in world exports, the
second consecutive year that it underperformed the rest of the
world, the World Trade Organization's data shows.
The WTO's latest figures, covering January and February this
year, show that South Korea is still lagging the global trend.
Korea's changing exports landscape means it stands to lose
less economically than many may think from a weak yen,
which has fallen 20 percent against the dollar in the past seven
months while the won has risen 1 percent.
A firmer won against the yen puts Korea's exporters under
pressure against their Japanese rivals but can help consumers by
lowering costs for imports from its neighbour, which include
industrial machinery, electronic components and consumer
Still, the domestic market is not strong enough yet to carry
the economy, analysts say. Domestic service sector output grew
between 2008-2012 at half the rate of the manufacturing sector,
central bank figures show. Productivity rose at just a fifth of
the pace of manufacturing over the same period, government
"Unlike other economies in Asia at the moment, Korea does
not have vibrant-enough local demand to act as a buffer against
headwinds in exports markets," said Frederic Neumann, co-head of
Asian Economic Research at HSBC in Hong Kong.
"The service sector, for example, lags in productivity
growth, and spurring innovation and research would not only help
Korean goods keep an edge in international markets but also
strengthen domestic demand," he added.
Manufacturing no longer produces as many jobs as in the
past, reflecting both the shift overseas and automation, which
helps explain the emphasis President Park Geun-hye is placing on
the domestic market following her Dec. 19 election victory.
"We have to pursue a balanced economy between domestic
demand and exports, turning away from one dependent only on big
companies and exports," she said during the campaign.
Park has not made any explicit comment favouring one sector
over the other since taking office in late February for a
single, five-year term, but she said as recently as Monday that
her policy was firmly focused on creating more, decent jobs.
Samsung, Hyundai and other family-run conglomerates, known
as chaebol, may have led the dramatic rise of the war-torn
country into a major global manufacturer in just over a
generation. But signs are growing that this structure is
changing and with it the economy.
"In the past, higher exports resulted in more investment and
employment, but the story has changed and even a major
motivation for investment these days is to boost automation,
which eventually means less employment," said Jun at Korea
(Editing by Neil Fullick)