In South Korea the auto parts industry faces unique conditions. In Northeast Asia it is surrounded by high-tech and high-priced competition in Japan on the one hand and by developing, low-cost competition in China on the other hand.
Currently South Korean suppliers are positioning themselves in between the rivals from China and Japan. According to analysts the industry operates at a high level of competitiveness: on average it produces 16.5 percent cheaper with labour costs being 23 percent cheaper than in Japan while having reached 90 percent of Japan’s quality¹ and 85 percent of its technology² level. Hence its strengths lie in producing high-quality (compared to China), low-priced (compared to Japan) automotive parts. In order to fend off Chinese and Japanese competitors in the future the focus is to close the technology and quality gap to Japan by 2010 while keeping the price levels moderate.
The bright mid-term outlook for the Korean OEMs will also positively influence the supplier industry as 90 percent of domestic auto-parts demand is covered with Korean products. Business analysts predict domestic sales will continue to rally, hitting 1.2 million newly registered cars in 2007. Exports are developing well, too, as Korean automobiles enjoy a good reputation in terms of technology and cost/performance ratio abroad and new markets like India and China are playing an ever increasing role. In 2007 exports are expected to increase by 4.9 percent up to 2.8 million units.
Also growth of vehicle imports to South Korea is strong, for 2007 45,500 units are expected and the trend is set to remain so. However, this is only a market share of about 4 to 5 percent, which shows that there is still a long way to go in the coming years.
Those growth prospects for local OEMs will also shape the supplier industry’s future. Since many foreign-owned car-parts manufacturers have invested in Korea – among them global players such as Visteon, Delphi, Bosch and Denso – they will have a considerable share. 26.2 percent of Tier 1 suppliers (239 out of a total 913 companies) were foreign investment companies in 2005.
The Korean auto parts industry consists of roughly 3,600 companies, among them 920 Tier 1 suppliers. The total industry turnover amounted to 41.7 billion won in 2005 according to the Korea Auto Industries Coop. Association (KAICA). 32.7 billion won were earned with local OEMs, 6.8 billion worth of auto parts were exported and 2.3 billion of the turnover was generated with spare parts. Most Korean suppliers are SMEs, only 86 or 9.3% of the major enterprises existed in 2005. Important Korean suppliers are Hyundai Mobis and Mando.
