SOUTH KOREA'S AUTOMOTIVE INDUSTRY
History of Automotive Industry in South Korea The South Korean automotive industry has experienced rapid growth since its inception in the early 1960’s (Green, 1992). The growth of the industry to maturity has been progressive over the years. Currently, South Korea is ranked as the fifth largest producers of automobiles in the world. Research shows that the automotive industry in South Korea seemingly operates with constant return to scale (Sturgeon et al. During its initial establishment, only one firm, the Hyundai Motors, dominated the auto industry. The theory was first introduced in the 1970s. Over the past four decades, New Trade Theory has revolutionized different aspects of the economic landscape (Baltagi, Egger, & Pfaffermayr, 2003). The theory postulates that the ability of a business organization to achieve economies of scales can lead to changes in the international trade.
Historically, efficiency and effectivity of production from the economic angle suggest that economies of scale are an advantage for the organization. Through economies of scale, the firm can produce maximum output at a reduced unit cost. As such, it is common to find the automobile manufactured in South Korea being driven in other countries worldwide. What this means is that through the production of automobiles, South Korea amplifies its international trade power. The international trade agreements and policies govern export and import of goods. For instance, in the current times of international sanctions on some nations such as North Korea, trades are limited. The economies of scale affect the average cost of the goods. As nations increase their trade capacity, the resource endowment and technology may be affected.
A genuine system of mutual benefits emerges. International trade is instrumental in promoting and enhancing globalization (Sturgeon et al. Even when the trading nations do not differ in the resources and technology, New Trade Theory suggests that the countries will still attain some trade benefits. Through specialization in production of goods, the country will enjoy the economies of scale. As Porter argues that efficacy of one of the attribute depends on the contingency of the others, it is apparent that South Korea’s automotive industry has stabilized all the characteristics of Porter’s diamond. Porter also points out that chance and the government can play an important role in shaping the national diamond. The future of trade in a country depends on the government policies and regulations.
In the context of South Korea, the government has invested massive resources in developing the production industry. The South Korean government appropriates huge amount of finances to fund the education sector. The level of technological expertise in South Korea is high. As such, the innovativeness that is required in the dynamic automotive industry is facilitated. Through, constant research and development, South Korea’s automotive industry has gained a competitive edge over its competitors in the global market (Sturgeon et al. South Korea has a well-developed communication structure that plays a vital role in the enhancing economic development. The competitive advantage of South Korea’s automotive industry is facilitated by the demand conditions of the local consumers. The last component of national advantage described in Porter’s model is the firm’s strategy, structure, and rivalry.
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