How Korean companies are benefiting from Japan`s quake

○ Buyers seek Korean goods instead of Japanese

Four staff members clad in anti-dust clothing and gear were seen constantly moving around LMS plant Thursday in the Gwanyang neighborhood of Anyang, Gyeonggi Province. They cut and packed optical pickup parts used in mobile handsets or TVs according to customer orders.

This plant has operated around the clock in two shifts since the March 11 earthquake in Japan, yet can hardly meet surging demand in Japan and the U.S.

Until early this year, Asahi Glass of Japan controlled 90 percent of the world market and LMS a mere 10 percent. Since the earthquake, however, an unprecedented change has occurred.

As of this month, LMS saw its global market share increase to 20 percent and expects to reach 30 percent by year’s end.

Signs of market share growth emerged soon after the earthquake. The five-floor LMS office in Anyang was full off Japanese buyers following the quake rushing to secure replacement parts as Asahi suffered damage from the tsunami. Several days later, big name companies such as Sony, Panasonic and Pioneer contacted LMS, proposing to begin trading with the company.

LMS Executive Director Oh Young-soo said, “Not only Japanese companies but also U.S. computer manufacturer HP recently conveyed its intention to purchase our products from us,” adding, “We were struggling to expand our share in the market, which was dominated by the Japanese company, and we now apparently see the fruits of our steadfast efforts through this opportunity.”

Daehan Special Metal, a manufacturer of auto parts, tap water piping tools, industrial machinery and machine tools in the township of Dasan in Goryeong County, North Gyeongsang Province, is also enjoying massive demand. The diary of company vice president Seo Gap-seong is filled with scheduled meetings with Japanese buyers.

Seo said, “Since our existing dealers seek to buy more of our products, we cannot meet the demand with our current production facilities.”

Japanese who came to Korea to buy Korean products were often seen at Korean industrial complexes. One Japanese businessman who was visiting Shihwa Industrial Complex Wednesday in Shiheung, Gyeonggi Province, said, “More Japanese buyers seek to buy products from Korea, including tires and wheels, after Japanese auto parts manufacturers suffered quake damage.”

Not all small- and medium-sized Korean firms have benefited from the earthquake, however. A survey showed that under 10 percent of Korean companies have benefited from the disaster. Smaller companies with core technologies that import materials from a source other than Japan have benefited from the earthquake.

Lee Gyeong-sang, industrial policy director at the Korea Chamber of Commerce and Industry, said, “Even if Japanese companies rebuild plants, they will inevitably suffer production disruptions due to lack of power supply,” adding, “So chances are high that companies benefiting from the earthquake will enjoy a boom for a considerable period of time going forward as well.”

○ Damage not as serious as thought

KIC, a maker of products for car tuning in Shiheung, has suffered a major blow due to the earthquake. It used to export about 40 percent of its production but saw purchases from Japan tumble following the quake.

KIC has absorbed a significant portion of the shock, however, because it has developed new buyers by shifting its main export markets to China and Taiwan.

KIC President Eom Tae-woong said, “Since products for automobile tuning are a type of fancy accessories, we saw our exports to Japan decline about 40 percent after the earthquake,” adding, “Our sales have recovered to nearly 80 to 90 percent of those in previous years.”

The situation is similar at other companies as well. They have suffered no significant damage, or resolved problems early on after the disaster. In a survey, only 8 percent of the companies surveyed said they continue to suffer damage.

HNS Hi-tech, a small company in Daejeon that produces parts for LCD products, received a letter soon after the quake from a Japanese company. The letter read, “We seek your understanding because our delivery could be delayed.”

Since then, HNS did not receive parts supplies on time for about month but deliveries returned to normal from mid-April.

The chemical industry suffered weaker damage and benefits than expected from the earthquake. LG Chem, Hyosung and Woongjin Chemical said they suffered little damage in parts imports from Japan due to the disaster, and that few of what they export overlaps with Japanese products.

Analysts say that though the Japanese economy is on shaky ground due to the quake, this will have little effect on the Korean economy. According to an analysis released recently by Mizuho Securities of Japan, a one percentage-point drop in Japan’s GDP will only cause a decline of 0.13 percentage point in Korea’s GDP.

○ Importance of risk management

LMS kept two months` supply of reserves in ordinary times but increased it to three months` worth after the quake. The company has realized how a significant weakness the just-in-time production system, which was considered one of the greatest strengths of Japanese manufacturers, can prove to be in the event of a crisis.

The survey found a fourth of Korean companies was preparing for disasters such as the Japan quake. The most common among measures they cited was diversifying their import sources to countries other than Japan (6.8 percent), followed by expansion of inventory levels (6.1 percent), diversification of exports markets (5.8 percent), and reinforcement of safety management plans (5.4 percent).

lycho@donga.com lovesong@donga.com