Economies of Japan and South

¶ … economies of Japan and South Korea. This is accomplished by analyzing the underlying strengths and weakness for each country. Once this takes place, is when we will draw conclusions about what steps can be taken to deal with any kind long-term challenges. This is when both nations can more effectively compete in the world markets.

Since the end of World War II; Japan and South Korea have seen a number of transformations. As, they both had their industrial base destroyed by conflict and were forced to rebuild. During this process, is when they would shift the focus of their economies to become major industrial powerhouses. The only difference is in the way overall scope of these changes was taking place at different times.

For Japan, these transformations occurred with the U.S. playing an active role in reestablishing the nation's manufacturing sector in the 1950's. This allowed the country to experience unprecedented amounts of economic growth between the 1960's into the early 1990's. Then, their economy began to slow and the country has been experiencing deflation coupled with stagnation. What was happening is that many people began to make aggressive investments overseas and in Japan with the belief that they will be able to increase their returns even more. Part of the reason for this, is because Japan had seen above average levels of economic growth during this time. Evidence of this can be seen by looking at the below table which is highlighting the average rate of growth for the country from the 1960's through the 1980's. ("Japan")

Average Rate of Economic Growth from the 1960's to the 1980's

Decade

Growth Rate

1960's

10%

1970's

5%

1980's

4%

("Japan")

These different figures are important, because they are showing how the Japanese economy was growing consistently for over thirty years. This caused most people to assume that the nation would be able to experience similar kinds of growth in the future (which lead to excessive amounts of speculation). Once this occurred, it meant that the nation would have to deal with the lingering effects of a major asset bubble. ("Japan")

However, despite these challenges Japan continues to remain one of the largest manufacturing bases in the world. The reason why, is because the after effects of the bubble have caused banks and government institutions to remain fiscally conservative in their spending and lending practices. This protected the economy against the sub-prime mortgage meltdown and it helped to ensure that the nation maintained its status as the third largest economy in the world. These different elements are significant, because they are highlighting how Japan was able to rebuild and deal with the challenges. ("Japan")

In the case of South Korea, their economy was devastated by the civil war that occurred with communist North Korea in the early 1950's. After the war was over, is when different programs were implemented to help rebuild their manufacturing base between the 1960's and 1970's. This allowed the country to begin to experience above average amounts of growth and they began to export a host of products around the world. The problem was that this growth was financed through tremendous amounts of public borrowing and high debt ratios. In 1997, this lead to a major fiancial crisis in the country, as GDP growth rate declined by 6% between 1997 and 1998. Then, there were a series of different reforms enacted that encouraged everyone to save and the total amounts of foreign direct investment capital decreased. This is significant, because these kinds of reforms helped to protect the economy from the global financial crisis (with the nation experiencing a .2% GDP rate for 2009). In 2010, these numbers increased to 6%, thanks in part to their focus on having policies that were fiscally responsible. ("South Korea")

To determine the role that both countries are playing in the development of the Asian economy requires looking at their underlying strengths and weakness. This will help us to determine possible challenges and opportunities for these nations. Once this occurs, is when we will be able to see the influence these countries in region and the impact that they are having on commerce.

The Strengths and Weaknesses of the Japanese Economy

There are a number of different strengths of the Japanese economy a few of the most notable include: their ability to innovate and their reputation for quality. As far as the ability to innovate is concerned, Japan is at the forefront for developing new products in electronics and technology. This is because, there was a focus on specializing in developing merchandise that consumers would want to purchase over competitors. Where, they are providing them with more features that are considered to be state of the art prior to other firms in the marketplace. This has allowed Japanese firms to be able to redefine the industry and the kind products that consumers are demanding.

A good example of this can be seen by looking no further than, the introduction of hybrid cars by Toyota and Nissan in the early 2000's. At the time, oil prices were low and most people were not concerned about fuel economy. However, as the price of crude oil continued to rise is when there was a shift in the marketplace, with consumers demanding these kinds of vehicles. Once this occurred, it meant that these companies were able to take market share from the largest auto manufacturers in the world (i.e. GM, Ford and Chrysler). This is significant, because this kind of approach has given Japanese firms a major advantage over their competitors. (Ghosn 190 -- 195)

The reputation for quality goes back to the 1950's when the economy was having trouble recovering and the manufacturing sector remained stagnant. To help focus the sector, Edward Deming came to Japan. He was an American economist who had an innovative idea for creating new products and services. The basic approach that he was using was to encourage industry to focus on producing high quality products that were in demand. Over the course of time, this helped Japan to be able to build its reputation for quality in comparison with foreign-based firms. Once this occurred, it meant that perceptions were changing about quality and what products were considered to be superior to others in the marketplace. This is significant, because this approach helped Japanese firms to standout against competitors. (Panella 40 -- 49)

There are number of different weaknesses that are impacting economic growth in Japan. The most notable include: huge amounts of government debt, deflation and an aging population. The large amounts of government debt is problematic, because this has been stifling economic growth moving forward. Where, this is currently accounting for over 200% of the nation's GDP growth. This is troubling, due to the fact that these high amounts of debt will make it difficult for the government to provide the general public with the kinds of services they demand. ("Japan")

Over the course of time, this makes it more challenging for any kind of significant economic growth to take place. The reason why, is because the lack of fiscal controls are causing consumers and businesses to limit their spending. Once this takes place, it means that everyone will begin to embrace a mindset of not wanting to spend any moeny. This is when there will be continuing amounts of deflation due to the lack of consumer and business confidence. ("Japan")

At the same time, the Japanese economy is dealing with an aging population. In the future, this means that the nation will not be as productive and there will be the possibility of labor shortages inside key industries. These different elements are important, because they are showing how the combination of them is contributing to economic stagnation. Over the course of time, this can cause Japan to see very weak economic growth. Once this take place, it means that the nation will not be as competitive in the global marketplace. ("Japan")

The Strengths and Weaknesses of the South Korean Economy

The South Korean economy has a number of different strengths the most notable include: a strong manufacturing base, government policies that are supporting growth and there is a surplus. When it comes to its manufacturing base, South Korea has been focused on becoming one the primary exporters of different products around the world. The reason why, they have been taking this kind of focus, is because this has helped the country to see a dramatic improvement in its standard of living since the 1970's. This has allowed South Korea to be able to import products to a number of different countries around the world. Evidence of this can be seen by looking at the below table which is showing the nation's top trading partners. ("South Korea")

South Korea's Top Trading Partners

Country

Percentage of South Korean Imports / Exports

China

17.9%

Japan

16.2%

United States

10.1%

Saudi Arabia

5.2%

Austrailia

4.9%

("South Korea")

These different figures are significant, they are highlighting how South Korea has a large number of developed and developing countries they are exporting their products to. This has helped to protect the economy against sudden shocks from different events.

The government policies that are supporting growth are designed to encourage foreign direct investment in the South Korean economy. What happened was the Asian financial crisis (in 1997), underscored how government officials needed to open their economy up to foreign investors. As a result, the total amounts of money that was coming in began to increase dramatically with these figures currently sitting at $115.6 billion dollars. This is a part of an effort to diversify the economy away from the manufacturing sector. Over the course of time, this has allowed South Korea to build up their infrastructure and improve personal income with this coming in at $30,000.00 per year. This is significant, because in the early 1970's the average South Korean earned $1,200.00 per year. ("South Korea")

The different policies that were enacted have meant that the South Korean government is now running a large budget surplus. This is because the tremendous amounts of growth and economic assistance have helped the country to experiencing a positive balance of trade. Where, the government realized a $35 billion trade surplus last year. Over the course of time, this has allowed them to provide the public with more services and to focus on how to diversify the economy. These different strengths are significant, because they have helped South Korea to become an economic powerhouse in Asia. ("South Korea")

As far as the weaknesses are concerned, South Korea is dealing with a number of challenges that could have an impact on economic growth in the future. A few of the most notable issues that they are dealing with include: an aging population, an inflexible labor market and a dependence upon the manufacturing sector for economic growth. The aging population is problematic, because this can have an adverse impact on economic growth by causing productivity to decline. Evidence of this can be seen by looking at the below table (which is illustrating the majority of the population is classified as a part of the 15 to 64 years old age bracket). As, the median age is: 37 years old for males and 39.8 for females. ("South Korea")

Age Demographics of South Korea

Age

Percentage

0 -- 14

15.7%

15 -- 64

72.9%

65 and over

11.4%

("South Korea")

These figures are significant, because they are showing how over the next 30 to 40 years South Korea will have the majority of their population classified as over 65 years old. This is troubling, because this means that there could be labor shortages, which will lead to a decline in productivity and the standard of living. ("South Korea")

An inflexible labor market is a major issue that will have an impact on future economic growth. The reason why, is because there are certain policies that are giving executives less control in adjusting to changing economic conditions. What has been happening is the South Korean government, has restriction on how and when layoffs will be conducted. This is troubling, because it prevents firms from having large scale layoffs when they seeing decreases in demand. Over the course of time, this will have an adverse effect on the ability of executives to react to a host of situations (which is giving them a competitive disadvantage). (Chung 715 -- 209)

Moreover, there have also been frequent labor slowdown and work stopages. This is because there have been disputes between executives and employees on a host of issues. A few of the most notable include: pay, working hours, conditions and added compensation. These issues are troubling, because they are sign that the labor market could create a number of problems for South Korea in future. As, executives are concerned about how: they can be able to increase productivity and keep labor costs low. Over the course of time, this creates a situation where foreign direct investment capital will decline. This is the point that the economy could face the possibility a major slowdown that will last for several years. (Chung 715 -- 209)