Korea depends heavily on exports for its economic growth. Its portion of exports to gross domestic product hovers above 40 percent, much higher than the 10 percent level of most major advanced economies.
This implies sluggish outbound shipments will have a larger impact on the Korean economy than for most of its peers. So it is natural that concerns are deepening over a continuous decline in the country’s overseas shipments.
Korea’s exports fell by 4.3 percent from a year earlier to $178.9 billion in the first four months of this year, according to figures from the Ministry of Trade, Industry and Energy. The decrease grew to 8.1 percent in April.
Bank of Korea Gov. Lee Ju-yeol recently expressed worry over the downward trend, which he said was unlikely to rebound for the time being due to “factors that cannot be resolved in the short term.” As he noted, Korean exporters will have to go through a long period of unfavorable external conditions ― slowing global demand, low oil prices and a weakening yen.
Against this backdrop, calls have been mounting for efforts to expand domestic consumption to help boost growth. Increasing consumer spending at home is necessary to ensure the economy will be less vulnerable to turbulence in overseas markets. But boosting exports will still be essential to reinvigorate the economy, with many households opting to pocket increased income rather than spend it amid growing anxieties over an uncertain future.
Large manufacturers have so far accounted for most of Korea’s overseas shipments. But the trickle-down effect has diminished in recent years as an increase in their exports has not led to a rise in employment and wages. Many large manufacturing exporters have moved production abroad. In a possible reflection of these conditions, exports’ contribution to economic growth has decreased in Korea over the past years.
What is now needed is to step up efforts to help increase exports by small and mid-sized enterprises. SMEs employ nearly 90 percent of workers in the country. If they gain more profits by selling more products abroad, it will have a more tangible effect on the economy. Higher wages for their employees will help boost domestic spending and ease Korea’s deepening economic polarization.
SMEs account for 34 percent of Korea’s total exports, lower than the average of 39 percent for the 34 members of the Organization for Economic Cooperation and Development. Only 3 percent of small and mid-sized companies in the country ship their products abroad, while the corresponding figures exceed 10 percent in major advanced economies such as Germany, the United Kingdom and the Netherlands.
Effective measures should be worked out and implemented persistently to strengthen support for SMEs seeking to sell their goods abroad. The government and trade organizations ought to provide them with more useful information on overseas markets and connect them with more foreign buyers.
With global trade stalled amid sluggish demand in major economies, small companies equipped with an innovative spirit and competitive products may be better positioned to find new opportunities abroad.
