Purchasing economics in Korea and Asian supply chain profits

By Dominique Numakura

Since the beginning of 2004, the Korean won has appreciated 23% against the US dollar and more than 32% against the Japanese yen. In comparison during this same period, the yen has depreciated 15% against the dollar.

This significant appreciation of Korea’s won has made a lot of difference in today’s Korean economy. Korean export companies, especially electronics manufacturers and automobile companies in South Korea, have been burdened with huge financial damages brought on by the won’s appreciation.

As Korean companies export products against the dollar or yen, Korean companies are receiving less won. This translates to selling the same product at a lower average selling price (ASP). Korean exporters have been experiencing significantly reduced earning incomes over the course of the last two years.

Asia hourly manufacturing wages vs developed economies
South East Asian manufacturing strategy
Asia labor costs and China manufacturing relocation impact considerations

The recent strength of the Korean won makes for an extremely competitive business landscape in Korea for equipment manufacturing companies and material manufacturing companies in South Korea competing against their Japanese counterparts. Korean companies cannot offer competitive pricing compared to Japanese companies when quoting business deals using standard profit calculations for Asian markets — especially in Taiwan and China.

Meanwhile, Korean importers could have experienced a remarkable windfall due to the won’s continued appreciation (a strong won reduces import costs) however, increasing global market prices for raw materials such as crude oil and copper ingot have cancelled out many of these potential financial benefits. Korean manufacturers surely cannot be enjoying this situation very much.

Many market analysts expect greater appreciation of the won for some time to come. Numerous Korean exporting companies are concerned that with the won’s continued rise, damage to the Korean economy will be inevitable with a lot of bankruptcies surfacing in the near future.

Our office, however, is more optimistic about this situation because of similar experiences with Japan’s electronics and automobile industries in the 70s, 80s and first half of the 90s when Japan’s yen appreciated more than 400% against the dollar during a period spanning 22 years.

Following World War II, one dollar equaled 360 Japanese yen. This was primarily due to a fixed exchange rate between the two currencies which lasted until a floating exchange system was introduced in 1973, the year the yen began to continuously appreciate against the dollar (except for the year 1995 marking the end of thin continuous appreciation when one dollar equaled just 80 yen). Looking back, you would think most people asked themselves if Japanese manufacturers would survive during this period of 400% appreciation. Well, yes, they did.

Private message OEM peers. Access all content.

For electronic OEM professionals working in OEM companies. Connect with OEM peers and access exclusive content.

Add your comment


Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

TIP: Anyone can post article comments whether or not you are registered. But, if you register or log in you can attribute your posts to your user profile in GlobalNet Community.

Your email address will not be published. Required fields are marked *



You might also like:

EMS Factory Cost vs OEM Quote vs OEM Target Price

Provider spotlight

About is the leading online destination helping electronics OEM decision makers make more informed decisions and reduce risk. We offer educational Webinars, thousands of original articles and helpful tools, a community of influencers who understand the challenges facing your company today, and a comprehensive directory of electronics provider services.

Copyright Venture Outsource, LLC. All Rights Reserved
The material on this site is for informational purposes only and is not a substitute for legal, financial or professional advice. Distribution and use of this material are governed by our User Terms Agreement and by copyright law. By using our Website you agree to site Terms and Privacy policies. For questions please contact at 1-888-860-1193 or visit