From Seoul, on a Hurried Shopping Spree : With $400 million to spend, Korean executives journeyed to the U.S. a third time this year. In Southern California and elsewhere, they looked for machine tools--and a way to repair a trade imbalance.
A group of Korean executives sipped orange juice from glass goblets and nibbled on miniature coffee cakes at a reception hosted by Mayor Tom Bradley recently. They weren’t there to announce another shipment of Hyundai cars or Korean videocassette recorders.
They were part of a Korean buying mission--the third this year--which the mayor heralded as a first step in Los Angeles to help reduce the trade imbalance between the United States and Korea.
So much for hype. The 20-member buying mission was shopping the U.S. market to spend $400 million--$42 million in California--on machine tools. That’s a small amount considering that the U.S. trade deficit with Korea is expected to hit $8 billion this year, compared to $7.5 billion in 1986.
Korea has been under increasing pressure from the United States to reduce the trade imbalance, which has caused friction between the two countries. The first Korean mission in February purchased $2.1 billion worth of U.S. goods, mostly aircraft, and its second in May spent $250 million on U.S. electronics.
Under Pressure
The third mission originally had planned to spend $510 million, but that amount was reduced by more than 20% because some Korean executives had to stay at home to settle labor disputes that have recently riddled Korean industry.
Korea cannot afford to exacerbate any friction with the United States. “The United States is their biggest market and the guarantor of their military protection,” explains Richard Drobnick, director of the International Business Education and Research Program, a USC graduate program focusing on business and economics in the Pacific Rim. “But they (Koreans) have a problem because their industry is, from their point of view, overly dependent on Japanese imports.”
“Koreans feel they are under pressure from Americans. They feel for lots of good reasons that they should be modifying their source of supply,” Drobnick said.
About 40% of Korea’s exports find their way into the United States. Since 1984, Korean exports to the United States have more than tripled to more than $12 billion, while imports have only doubled to the $5-billion level.
Korea, which imports both products and technology from Japan, had a $5.4-billion deficit with Japan in 1986. That was up sharply from the $3-billion deficit in 1985 because the cost of Japanese goods has risen as the yen has appreciated.
“Every Hyundai car that comes here has a large amount of Japanese parts in it,” Drobnick said. “For every $1 of exports, 40 to 50 cents of it is for Japanese components, licensing and engineering.”
To encourage Korean businesses to reduce their dependence on the costly Japanese imports, the Korean government is subsidizing $2.6 billion in low interest loans to firms that buy U.S. products, according to Kye Mook Jun, director general of the machinery industry bureau of the Korean Ministry of Trade and Industry.
Drobnick said Korean businessmen cite some of the same problems as the Japanese in using American parts. “The Korean industrialist says he can’t buy American components because they are not good quality, they don’t fit in their design, or American firms won’t modify equipment to fit a South Korean factory, or they won’t come to service the equipment.
“Logically, it’s easier for a Japanese engineer to fly from Osaka to Korea than from the United States. I’ve heard from Korean executives that if they have a problem and call Japanese engineers, they come (to Korea) the next day. Even if American firms are willing, it takes a day and a half.”
Drobnick said that from the point of view of American firms, “they say it’s hard to do business in Korea,” partly because of the labyrinth of the Korean bureaucracy and the language.
California Contracts
The latest Korean mission signed $30 million worth of business during its three-day stay in California. The remaining $12 million was to be negotiated. Nationwide, the mission will sign $290 million in contracts and negotiate $68 million more, according to Jun of the Korean Ministry of Trade and Industry who accompanied the mission.
Jun said Samsung Aerospace, for example, signed a $10-million contract to purchase aircraft components from National Airmotive of Oakland and Hyundai Motor purchased gasoline analyzers from Horiba Instruments, an Irvine company, for $4.5 million.
California’s World Trade Commission reports that the value of U.S. exports passing through the state’s ports and airports to Korea totaled $2.43 billion in 1986, compared to imports of $5.12 billion.
To help U.S. businesses interested in Korean trade, the Korean government operates trade centers in Los Angeles, New York, Chicago, Dallas, Miami and Washington. The Korean Trade Center in Los Angeles reports that about 284 branches of Korea-based companies are now located in the Los Angeles area. More than 100 others are in the San Francisco area.
