Korea Cheaper Than Japan? Not Anymore

The idea that prices of commodities in Korea are cheaper than Japan is losing credibility.

For consumption in luxury items such as golf, ski, and high-end restaurants, both countries have a similar rate in pricing, and in some cases price ranges in Korea are higher.

Prices higher in Korea for some commodities-

Having spent five years in Tokyo, Japan as head of a branch office, Lee, a team leader of Company S, who returned to Korea last year, is spending 3,500,000 won per month for his family, roughly the same amount he spent in Japan.

When dining out, Lee feels that Korean food prices are much higher than what they should be. In Japan, the family of four spent 50,000 to 60,000 won at a family restaurant, but in Korea they had to spend at least 100,000 won for the same quality.

He said, “In Korea, if the food is at a satisfactory then it’s too expensive, and if it’s cheap then the quality is really bad. There’s no middle.”

B, who works at a Japanese company in Seoul, has a similar opinion.

“I went to a department store to purchase a suit, but I gave up because they were so expensive. What I can buy for 300,000 to 400,000 won in Japan is about 500,000 to 600,000 won here in Korea.”

Global brands with standardized service and taste are also more expensive in Korea.

The price of a cup of cappuccino (small) at Starbucks is 3,300 won in Korea and 290 yen (approximately 2,465 won) in Japan, where Korea’s cup of coffee is almost 1,000 won more expensive. The price of a McDonalds Big Mac hamburger in Korea is 2,900 won, while in Japan it is 280 yen (approximately 2,380 won).

Won strengthening plays a role … travel industry in a quandary

Price differences between Korea and Japan have been reduced as Japan’s pricing range remained at the same level for the past ten years, while Korea’s prices have steadily increased.

Setting the consumer price index of the year 2000 as 100, in 1995 Korea’s index was 82.3, while it rose 43 percent last year to 117.8. In Japan, the rate was 98.5 in 1995 to a drop of 97.8 last year.

The reduction of the gap in price differences is due in large part to changes in the exchange rate. With the recent strengthening of the won, the won exchange rate per 100 yen dropped by twenty percent from 1,005.69 won last January to 814.84 won in April this year.

Because of this, the number of Japanese tourists visiting Korea is falling. Until April of this year, Japanese travelers visiting Korea numbered 733,367 people, a drop of 12.5 percent (104,743 people) from the same period last year. On the other hand, Koreans visiting Japan increased by 21.6 percent (121,279 travelers) to 682,000 people.

Korean pricing rates are inflated-

Economists pointed out that prices in Japan are falling, but when considering the competitiveness of the two countries, the equalization of prices in the two countries is certainly not desirable.

With a GDP that is about seven times that of Korea, Japan’s prices that now equal prices in Korea lead to the analysis that Korea’s pricing rates are inflated.

Song Tae-jeong, a researcher at LG Economic Research Institute, said, “It is now likely that Japanese consumption goods that were relatively uncompetitive in pricing will now be able to dominate the Korean consumption market with its brand power,” and added, “The change in the trading trends is problematic, as it is now expanding from the industry up to travel sectors.”

Yang Jun-ho, a researcher at the Samsung Economic Research Institute, said, “Japanese prices are not rising as steeply due in part to the Japanese industry which aimed to simplify distribution structures and innovate production structures in order to overcome the stagnant economy.”

Chang-Won Kim Kwang-Am Cheon changkim@donga.com iam@donga.com