This paper aims to use Porter’s Industrial Cluster Theory to analyze and compare the competitiveness of the clothing, automobile and semi-conductor industries of Korea and several major advanced economies, and to help establish Korea’s future strategies based on the analysis.
Porter’s theory argues that the competitiveness of a nation’s industry is determined by variables such as ‘Factor Conditions’, ‘Local Demand Conditions’, ‘Related and Supporting Industries’, ‘Firm Strategy, Structure’ ,‘Rivalry’ and external variables including ‘Chance Events’ and ‘Government’. It also puts more emphasis on qualitative aspects than on quantitative ones. In terms of competitiveness, developing countries usually fall into the category of factor- or investment-driven stages, while advanced economies into innovation-or wealth-driven ones. Korea is assessed to be at an investment-driven stage, growing out of a factor-driven one.
Korea’s clothing industry achieved a high growth in its early years driven by low wages and the government’s active export promotion policies. However, the sector lost its edge with the lack of qualitative growth of its related and supporting industries and as factor conditions, related/supporting industries, and firm strategy/structure could not meet the sophisticating demand in the transition period. In Italy, the related/supporting industries, as well as manufacturing of fashion and clothing has grown with the development of human and knowledge factors..
Korea’s automobile industry acquired its competitive edge through a low wage-low cost strategy and the government’s support plans and import restrictions. However, in its transition period, the sector lost its competitiveness due to its failure to obtain the vertical clusters of its related/supporting industries and to maintain its low-price strategy. In contrast, Japan’s automobile sector stays competitive with its tendency to vertically integrate component suppliers and with its globalization drive mainly targeting high-end markets, despite its high reliance on outsourcing in related/supporting sectors.
Korea’s semi-conductor industry began as foreign enterprises entered the Korean market to utilize the country’s low wages, and grew rapidly thanks to the government policies and market participation by Korea’s major corporations. However, despite its high competitive edge and easy access to capital, the sector is struggling to achieve further growth due to its insufficient demand sophistication and low competitiveness of related/supporting industries. In contrast, Japan’s semi-conductor industry is achieving continuous growth thanks to favorable factor conditions for capital and workforce, and sophisticated demand in related industries.
This analysis reveals that Korea is competitive in semi-conductor, computer, household appliances, transportation, materials, and metal sectors in which, despite less than desirable related/support industry and demands conditions, companies and government can work together to rapidly increase output through a massive production strategy.
Keywords: national competitiveness, clothing, automobile, semi-conductor, competitive advantage