Competitiveness: A Korean Vision
The ABCD Framework of K-Strategy
Hwy-Chang Moon
Professor of International Business Strategy
Graduate School of International Studies
Seoul National University
cmoon@snu.ac.kr
Contents
Korea’s Development
 National Level
 Firm Level
Existing Studies
 Review
 Criticism
A New Approach
 ABCD Framework and Theoretical Background
 Case Studies
Conclusion
 Implications
 Further Studies
2
Korea’s Economic Growth and Industrial Upgrade
GDP per capita (US$)
25,973
(2013)
WTO
(1995)
Capital Market
Open
(1992)
Imp. Substitution
Exp. Promotion
OECD
(1996)
21,590
(2007)
11,468
(1995)
1,042
(1977)
91
(1961)
Source: Data (1960-2012): World Bank World Development Indicators; Data (2013): Korean Statistical Information Service.
1960s
1970s
1980s
1990s
2000s
3
Foreign Perspectives: Korean Companies Cannot Succeed?
• POSCO: IBRD Report
-
In 1968, Korea should first develop labor-intensive industries before steel.
-
-
Korea used a part of war compensation fund from Japan
In 1986, Dr. Jaffe in the general meeting of International Iron and Steel Institute (IISI)
-
Koreans were beyond common sense
• Samsung Electronics: Mitsubishi Report
-
Five reasons to fail
-
-
Korea’s market size, related industries, social overhead capital, company size & technology
A few Japanese companies helped
-
Semi-conductor VLSI tech from Sharp Corporation
• Hyundai Motor Company: U.S. Consumer Report
-
The lowest rankings evaluated by U.S. consumers in the early 1990s
-
-
Worst! Never buy again!
Frequently cited at comedy shows
-
Junk! Toy!
4
Existing Studies on Korea’s Development
Study
Argument
1. Amsden (1989)
• Learning existing Western technologies rather than innovation
• Efficient government intervention policy in the optimal allocation of resources
2. Song (1997)
• Outward, Industry, and Growth (OIG) strategy
• Confucian ethic as an underlying basis for development
• Land use, a family-planning program, savings and consumption behaviors
3. World Bank (1993)
• Rapid physical and human capital accumulation
• Government’s market-friendly policy
4. Cho (1994)
• Abundance of good workers of high standard of literacy, discipline, and desire to grow
• Vigorous entrepreneurship
• Export-led growth strategy along with effective government development strategy
5. Toussain (2006)
(1) government intervention, (2) US technical and financial support, (3) land reform, (4)
transition from import substitution to export promotion, (5) authoritarian planning, (6) state
control over banking sector, currency exchange, capital flows and product prices, (7) US
protection, (8) education, (9) scarcity of natural resources
6. Mason (1997)
• Slower rates of population growth favored investment in education and incentives for
saving, which accelerated the economic development
7. Chang (2003)
• The internal operations of Korean business groups and their role in the Korean economy
• Financial crisis due to the failed adaptation to changing external environments by the
business groups and Korean government
8. Eichengreen, Perkins,
and Shin (2012)
•
•
•
•
Learning and government policies for promoting economic growth
Adaptation to the global economic environment
Rapid shift of export structure to focus on high-growth products
Export diversification
5
Conflicting Arguments between Studies
Export-oriented Trade Policy
Song (1997), Toussaint (2006)
Korea’s economic success was due to its
export-oriented trade polices
Amsden (1989)
vs.
The content of institutional frameworks
and the capacity to implement policies are
more important.
Industrial Policy and Structure
World Bank (1993)
Eichengreen, Perkins, and Shin (2012)
The industrial policy of promoting several
targeted sectors (e.g., chemical and heavy
industries) had little apparent impact on
industrial structure.
The industrial policy played an important
role for the transition from light to heavy
industry in the early stages of Korea’s
growth.
vs.
6
Previous Studies and Porter’s Diamond Model
1: Amsden (1989)
2: Song (1997)
3: World Bank (1993)
4: Cho (1994)
5: Toussaint (2006)
6: Mason (1997)
7: Chang (2003)
8: Eichengreen et al. (2012)
Government
Firm Strategy, Structure,
and Rivalry
• Chaebol: 1, 7
• OIG Strategy: 2
• Entrepreneurship: 4
Demand Conditions
Factor Conditions
•
•
•
•
•
•
•
Fertility: 2, 6
Human capital: 2, 3, 4
Education: 5
Savings: 2
Land reform: 2, 5
Scarcity of natural resources: 5
New Confucian ethic: 2
• Intervention: 1, 2, 3, 5, 8
• 5-year plan: 4, 5
• Openness-orientation: 2, 5, 4, 8
• Global consumers: 8
• Export diversification: 8
Related and Supporting
Industries
• Institutions: 1, 8
• US technical and financial support: 5
• Protection by the US: 5
Previous studies explain subsets of the determinants of the diamond model.
7
The Diamond Model (Michael Porter)
x
x
x
x
Y = β0 + β1 1 + β2 2 + β3 3 + β4 4 …
• Factor Conditions
- Basic
- Advanced [Japan’s 輕薄短小 Technology]
Rivalry
Conditions
• Demand Conditions
- Size
- Quality [Italy’s Footwear Industry]
• Supporting Conditions
- Cluster
- Synergy [U.S.’s Silicon Valley]
Factor
Conditions
Demand
Conditions
Supporting
Conditions
• Rivalry Conditions
- Structure
- Strategy [U.S. and Japan’s Auto Industry]
8
“What” vs. “How” Approach
Existing Studies
New Study
“What” Approach
“How” Approach
• Superior resources
- Cheaper labor
- Higher technology
• Focus on “input” factors
• Static view
• Similar resources
- Similar labor cost, but HOW?
- Similar technology, but HOW?
• Focus on “process” factors
• Dynamic view
Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 …
• “What” Approach: X1, X2, X3, X4 …
• “How” Approach: β1, β2, β3, β4 …
As the gap in “What” factors has been narrowing,
the “How” approach becomes more important.
9
R&D Expenditure
•
•
Nokia is losing ground despite spending $40 billion on research and development over the past decade—
nearly four times what Apple spent in the same period
And Nokia clearly saw where the industry it dominated was heading. But its research effort was
fragmented by internal rivalries and disconnected from the operations that actually brought phones to
market
Source: Wall Street Journal, July 18, 2012, http://online.wsj.com/news/articles/SB10001424052702304388004577531002591315494
10
The ABCD Framework
4 Factors
8 Sub-factors
Speed
AAgility
Precision
Learning (Imitation)
BBenchmarking
Global-standard
CConvergence
Mixing
Synergy-creation
Diligence
DDedication
Goal-orientation
11
The ABCD Framework: An Integration of Established and Emerging Theories
Established Theories
Emerging Theories
Agility
• Speed
Early mover advantage
Fast follower advantage
(Economies of speed)
• Precision
Automation (from L-int to K-int)
Process techniques with human touch (自働化)
e.g., JIT, TQM, 6 sigma
• Imitation
[Resource-based view of the firm]
Absorptive capacity
(Economies of learning)
• Global-standard
Destructive innovation
Incremental innovation
e.g., Kaizan, creative imitation
• Mixing
[Specialization capability]
[(Economies of scale)]
Combinative capability
(Economies of diversity)
• Synergy-creation
Related diversification
(Economies of scope)
Related & Unrelated diversification
e.g., Chaebol, smartphone (platform strategy)
• Diligence
[Inspiration]
Perspiration
(Economies of hard-working)
• Goal-orientation
Unique positioning
Continued growth after catch-up
e.g., constructed crisis, extra commitment
Benchmarking
Convergence
Dedication
12
The ABCD Framework: Theories and Cases
Established Theories
Emerging Theories
Cases
Agility
• Speed
Early mover advantage
Fast follower advantage
(Economies of speed)
• Precision
Automation
Process techniques (自働化)
e.g., JIT, TQM, 6 sigma
• Imitation
[Resource-based view of
the firm]
Absorptive capacity
(Economies of learning)
• Global-standard
Destructive innovation
Incremental innovation
e.g., Kaizan, creative imitation
• Mixing
[Specialization capability]
[(Economies of scale)]
Combinative capability
(Economies of diversity)
• Synergy-creation
Related diversification
(Economies of scope)
Related & Unrelated diversification
e.g., Chaebol, smartphone
[Inspiration (West)]
Perspiration (East)
(Economies of hard-working)
Unique positioning
Continued growth after catch-up
e.g., constructed crisis, extra
commitment
Automobile Industry
(Ford, Toyota, Hyundai)
Benchmarking
Steel Industry
(US steel, Nippon steel, POSCO)
Convergence
Electronics Industry
(GE, Sony, Samsung)
Dedication
• Diligence
• Goal-orientation
Economic Development
(WEST: US, Europe)
(EAST: Japan, Korea)
13
Agility = Speed + Precision
A
Agility
Established Theories
Emerging Theories
• Speed
Early mover advantage
Fast follower advantage
(Economies of speed)
• Precision
Automation
Process techniques
e.g., JIT, TQM, 6 sigma
Fordism
Speed, Cost
• First to adopt mass production –
economies of scale
• Enhanced speed of production
B
C
D
Cases
Automobile Industry
(Ford, Toyota, Hyundai)
Toyotaism
Quality, Cost
Hyundaism
Speed, Quality, Cost
• Higher productivity and quality
through automation with human
touch (自働化)
• Appropriate in the stable market,
but not in the emerging market
• Higher production speed, tighter
control on quality through on-site and
24hr monitoring
• Growing confidence in quality
• US: 10-year, 100,000-mile warranty
14
Benchmarking = Imitation + Global-standard
Benchmarking
Established Theories
Emerging Theories
• Imitation
[Resource-based view of the
firm]
Absorptive capacity
(Economies of learning)
• Global-standard
Destructive innovation
Incremental innovation
e.g., Kaizan, creative imitation
A
B
C
D
Cases
Steel Industry
(US steel, Nippon steel, POSCO)
US Steel
Nippon Steel
POSCO
Dominated the world steel industry until
the 1950s
Dominated the world steel industry in
the 1980s
Became the world top company in the
1990s
• Learned from US and Europe
• Created combined blown converter
• Increased efficiency and reduced
unit consumption of raw materials
• Learned from Japan and the West
• Created FINEX
• Increased cost efficiency and ecofriendliness
• Learned from Europe
• Created hot strip mill system
• Produced a smoother sheet with
more uniform thickness
•
•
•
Japan: The best student of the West
Korea: The best student of Japan and the West
Imitate, Improve, Innovate!
15
Convergence = Mixing + Synergy-creation
A
B
Convergence
Established Theories
Emerging Theories
Cases
• Mixing
[Specialization capability]
[(Economies of scale)]
Combinative capability
(Economies of diversity)
Electronics Industry
• Synergy-creation
Related diversification
(Economies of scope)
Unrelated diversification
e.g., Chaebol, platform strategy
Related Diversification
• Developing new competence in new area
(Broadening and deepening)
• Extending existing competence in new area
(Deepening and broadening)
Sony
Others
8%
Energy Infrastructure
31%
Finance
33%
Finance
15%
Music
6%
Transportation
4%
Electronics
Healthcare
5%
13%
Aviation
14%
• Narrow diversification
A few related and/or unrelated
businesses
GE Annual Report (2013)
D
(GE, Sony, Samsung)
Unrelated Diversification
General Electric
C
Samsung
Imaging
11%
Game
8%
Service
28%
Electronics
50%
Mobile
18%
Finance
9%
Pictures
11%
Devices
8%
Entertainment
15%
• Broad diversification
A wide collection of related and/or
unrelated businesses
Sony Annual Report (2013)
Construction & Engineering
Chemistry
11%
2%
• Dominant diversification
One major core business taking up 50 –
80% of revenues, with several small
related and/or unrelated businesses
http://www.samsung.co.kr/main.do
Samsung Annual Report (2013)
16
Dedication = Diligence + Goal-orientation
Dedication
Established Theories
Emerging Theories
• Diligence
[Inspiration (West)]
Perspiration (East)
(Economies of hard-working)
Unique positioning
Continued growth after catch-up
e.g., constructed crisis, extra
commitment
• Goal-orientation
The U.S.
• Protestant spirit
- Frontierism for individual success
Hard work,
once America’s Spirit
“The American idea that hard work was
to be esteemed distinguished us from
Europeans who admired their gentlemen
of leisure. For us, hard work rather than
idleness was the way to distinction.”
–Lynne Cheney (April 6, 1993)
http://www.aei.org/publication/hard-work-once-as-american-as-apple-pie/
Japan
• Samurai spirit
- Disciplinism for collective welfare
Japanese working harder than
Americans
Japanese employees worked an average
of 2,201 hours in 1990. That figure is
about 300 hours more than the U.S.
average. By comparison, the Japanese
work about 550 hours more than
workers in the former West Germany.
- New York Times (February 7, 1992)
http://www.nytimes.com/1992/02/07/news/07iht-work.html
A
B
C
D
Cases
Economic Development
(WEST: US, Europe)
(EAST: Japan, Korea)
Korea
• Saemaul spirit
- Equalism for social mobility
The World's Hardest-Working
Countries
“In South Korea, ranking first place,
things are slowly moving toward the
OECD norm after the Korean
government introduced a five-day
working week in 2004 for schools and
companies with over 1,000 employees.
But with the culture of hard work so
deeply ingrained, change is slow.”
- Forbes (May 21 2008)
http://www.forbes.com/2008/05/21/labor-market-workforce-leadcitizen-cx_po_0521countries.html
17
Conclusion
• The ABCD framework is not exclusive for Korea, and can be applied to other countries.
• Different stages of economic development need different development strategies.
Agility
Benchmarking
Convergence
Dedication
Less Developed Stage
More Developed Stage
Speed
Precision
Learning (Imitation)
Global-standard
Mixing
Synergy-creation
Diligence
Goal-orientation
• The usefulness of ABCD Framework
1) To suggest Korea for further development
2) To help other countries for efficient and sustainable development
3) To apply at various units of analysis: country, industry, firm and individual level
4) To apply at various areas: economy, society and politics
18