한경제론 영어 완결

Great Thanks
to Argin Lee, English advisor
,and to Jin-ku Park, reporter of the Korea Economic weekly







{{{{ Ⅰ. Preface
Ⅱ. The Concept of Price Destruction
Ⅲ. The Cause of Price Destruction
Ⅳ. Example of Japan
Ⅴ. Price Destruction In Korea
1. Government's Role
2. The Lifting of Discount Sales Periods
at Department Stores
3. Circulation Companies in Korea
4. Distribution Market Opens Wider to
Foreigners
5. Chaebols, Foreign Retailers.

Ⅵ. Problems on'Price Destruction'
Ⅶ. Conclusion and Prospect


}}
}}
Ⅰ. Preface
We have confronted special trends like globalizaion which have not occurred
in the past. The word, 'the Third World{{). In the 1950s the 'third world' referred to the growing number of nonaligned
nation-states which were reluctant to take sides in the cold war.
-see Mark T. Berger, "The end of the 'Third World'?", Third world Quarterly,
Vol.15, No2 (1990) page 259
}}' disappeared with the Soviet Union
breaking down. Economics could be emphasized over politics. Most
diplomats are being pushed to be a kind of merchants.
Each markets are being organized in to one large world market. The
condition for trading is good. As you know, most countries want 'free trade'.
GATT was replaced by the WTO(World Trade Organization) which has
enough absolute power to regulate behaviors of certain countries. Price
revolution which we haven't dealt with commonly is sure to make a change on
managerial environment of all corporations in all countries regardless of size or
type. Because of it, the traditional system of both winners and losers is
changing and the relation between producers and consumers is also changing.
The price of all home appliances from TVs, VTRs, refrigerators, automobiles to
make-up, beverages are going down like dominos of price destruction{{). The phenomena including the spreading discount store, armed with good sale
prices is to be defined in English. The suitable words does not exist in English,
many non-English Speakers say their own style. 'Price Revolution', 'Dramatic
Undercut', 'Price Deduction', and so on. I choose 'Price Destruction' because it is
being used in the Korea Economic Weekly, the Korea Times, Reuter News Agency,
Economic Planning Agency Government of Japan.
}}.
All the customers who experience the price destruction say that it is very natural.
We have been meaningless customers so far just buying goods with the price
makers and distribution channel made by their own wills. Customers are idiots who
are absolutely neglected at the choice of commodities and prices. Because of the
price destruction, makers and distribution companies came to collaborate and the
others who failed to follow the trend have disappeared. That shows the recovery of
the customer's right.
Price destruction has come to become the strategic weapon which emerged from
the fight to take the leadership struggle in the market. The price of commodities
which consumers are very interested in is not a hoodwinking 10%, but a bargain
price at least from 30%~ 50% as a destructive price for selling normal goods in large
quantities, which is a new competitive system. Like 'open warehouse', 'clearance
sale', 'closing sale', 'bargain sale', it is not a kind of selling during a certain period
in style, but they{{). E-Mart, Kim's club, Price Club, LG Mart, the Dutch Macro etc..
-see 'the Korea Herald', 1996. 12. 2 page.8
}} continue the so-called destructed price for 365 days. Nobody
knows how much the price is going down. However, the certain fact is that the
consumer has started to enjoy consuming for the first time.
The wave of price destruction has landed in Korea. The starting of the actual
price destruction is different from cheap bargain sales and closing sale which we
have experienced in the past. The effect will possibly shake the economic market
order fundamentally without fail. What must we do at this reforming point of
time? In this essay, we will look over how it began, how powerful it is in
centering large discount stores. What kind of price destruction occurs in Korea, and
how to survive the economic war.

Ⅱ. The Concept of Price Destruction.
It is different from clearance, and bargain sales. It is different from bargain
price, mark-down sales. The word 'price destruction' is used as a different
meaning from mark-down sales & bargain sales which are passive meanings to cut
the price temporary by more or less 20%. However, it cuts the price by from at
least 20% to about an unimaginable price. Bargain sale is a short period including
a clearance sale. On the other hand, it continues for 365 days{{). Kim, Chey-nam, "the Price Destruction in Korea", the 21th Century Book, 1995 page 3~8
}}.
The appearance of the price destruction style companies make new price systems
(the policy of quick sales at small profits), cheaper than what they used to be. It
can be recognized as the phenomenon in which more competition in the distribution
system would compel the existing distributors to return the profits derived from the
appreciated yen to consumers and manufacturers to reduce their margins. In the
sense that price destruction is expected to induce a further rise in productivity in
the medium-run and to be sustainable, it should be appreciated positively and be
promoted, easing short-term negative costs like bankruptcies in lower-productivity
industries.
Therefore, it can be defined as "a surprising price cutting of goods by reducing
manufacturing cost and improving the marketing structure." Price destruction
effects price in the neighborhood.

Ⅲ. The Cause of price Destruction.
Why is this phenomenon spreading over the world? The first reason is the
aftermath of an economic panic since the 1990s. Generally economy has an
inseparable relation with inflation in free economy. For example, excessive demand
is so stronger than supply that commodities and service charges, price of goods, the
so-called price level is pressed to rise{{). 'The McGrow-Hill Dictionary of Modern Third Edition, Book Company, 1983 page 235
}}. On the contrary, recessing demand fails
to follow supply, which makes the level of price drop, later public utility charges and
wages are pressed to fall.
Recently in the 20th century, in retrospect, the prices of all goods go up abruptly:
thus inflation. So deflation of currency becomes fixed common in economic
situations. On the other hand, many analysts{{). Seiichi Yamada, retail analyst at UBS Tokyo Research also agree with it
-see 'Korea Times', 1995 . 9. 8 page 7
}} foresee sudden drops of prices,
service charges, average wages, and interest rate. The price level would be down
in full scale, and 'deflation' or 'deflation and inflation' will takes place on the other
hand in the future in the result of competition.
The second reason is enlarging free trade by the end of the cold war.
Economics, in a sense, emerges the first issue out of politics. The impact of the
end of the cold war will lead a displacement of the world in terms of aid and trade{{). Fred Halliday, 'the Third World and the End of the Cold War', Cambridge University
Press 1995, page 62
}}.
Powerful countries follow the system of capitalism. The world becomes one trade
block which the World Trade Organization and other negotiations have helped.
Price Destruction results in deregulation, borderless competition, free trade.

Ⅳ. Example of Japan
'Price destruction' shook the Japan Retail Industry. Last year it would sell
Kodak film at almost 50 percent below normal Japanese market prices, it was a
challenge to Japan's big photo film makers- and a sign of the times for the
country's battered retailers{{). Korea times, 1995. 9. 8 , page 7
}}.
"Kakaku hakai"- literally "price destruction"- is changing the face of Japan's retail
industry, forcing traditionally sedate companies to struggle for survival under the
pressure of competition.
A long slump in retail prices, caused by feeble economic growth over the last four
years, government deregulation and a flood of imports attracted by appreciation of
the yen, threatens to trigger a major shakeout in the industry.
Although price deflation is rare in industrialized economies, consumer prices in
Tokyo were down 0.5 percent in August compared to a year earlier. Many analysts
believe the slow slide could continue.
As falling prices squeeze profit margins, stores are being forced to sacrifice
traditional ways of operating- and one casualty is paternalistic "suggested pricing"
systems which were imposed by manufacturers on retailers to keep price up.
Now, price-setting power is shifting away from manufacturers and towards
retailers- and the retailers are using their power to push prices ever lower in order
to stay competitive against each other.
Analysts say government policy is also fuelling competition, as laws are changed
and the Fair Trade Commission issues warnings to companies over pricing policies
that it believes may restrict competition. For example, reform of Japan's Large
Retail Store Law in 1990 and 1992 enabled retailers to open up more new stores and
expand floor space.
Analysts say many big department stores have responded slowly to the new
demands of the market as they were unprepared for the downturn. Continued
"Price Destruction" is the Background of deflation. It should be noted that
deflation., in which price increases fall off, has occurred against the background of
two different factors: demand-side and supply-side. Demand-side factors which are
caused by weak demand and were usually observed during past recessions, are likely
to introduce a decrease in income or unemployment. On the other hand, supply-side
factors, the so-called "price destruction," caused by a rise in productivity or a
reduction in cost, are expected to increase real income.
Thus, the government{{). (Provisional Translation) ECONOMIC SURVEY OF JAPAN (1994-1995)-TOWARD THE
REVIVAL OF A DYNAMIC ECONOMY IN JAPAN-(SUMMARY) JULY 25, 1995
ECONOMIC PLANNING AGENCY GOVERNMENT OF JAPAN

}} should examine carefully which factors are the main cause
of the current deflation, and try to promote "price destruction," thus avoiding the
demand-side oriented deflation.

Ⅴ. Price Destruction in Korea

Government's Role
A silent revolution{{). Phase-Out of Exclusive Sales Agent System Sought for Consumer Goods
KOREA TIME 95.08.08 PAGE 09 SECTION BUSINESS

}} is taking place in the Korean distribution system as the
government seeks to discourage manufacturers of consumer products, including cars,
electronics products and clothing, from maintaining exclusive sales networks.
The first victory in this revolution is the breakdown of the exclusive distribution
system in computers. A wide variety of computers from different companies are now
exhibited in shops, enabling consumers to choose the brand they think gives the
most value for money. Consumers are also able to negotiate prices with sellers. It is
no coincidence that computer prices are falling more rapidly than those of any other
product in Korea.
There still exist inefficient, costly and producer-oriented exclusive distribution
chain systems in other sectors of the economy. The big car makers Hyundai,
Daewoo and Kia maintain exclusive sales outlets across the country. The three
leading electronics makers_Samsung, LG and Daewoo- also operate through exclusive
distribution networks. Clothing makers, insurance companies, oil refineries and
newspaper companies all maintain their separate, exclusive and costly distribution
networks. Manufacturers of such products have the power to establish sales
networks across the country. Their sales outlets can sell only the brands they
manufacture.
The exclusionary distribution system is the byproduct of the producer-oriented
economy. The system does not help consumers choose the most suitable product as
they are unable to compare one brand with other competing products in one shop.
From a macroeconomic point of view, exclusive sales networks are costly{{). 'The Modern Principle of Economics', Park Young Sa. 1992 page 302
}} and
unduly raise the rent for shops in major centers where people congregate.
Consumers have to shoulder additional costs as makers transfer distribution network
maintenance costs to buyers.
Many of these sales outlets are run by retired employees, close friends and family
members of manufacturing companies. On condition that they sell one company's
products on an exclusive basis, retailers are given attractive fixed margins. This
exclusive distribution network has the merit of guaranteeing buyers full
after-services even though prices are more expensive in exclusive sales outlets than
in shops selling brands of different companies. Makers also contend that exclusive
distribution systems have institutionally blocked the penetration of foreign brands in
Korea.
But Finance and Economy Minister Hong Jae-hyong said even as Korea expands
imports, it will implement a policy of promoting consumer benefits, shedding the long
practice of protecting producers{{). Phase-Out of Exclusive Sales Agent System Sought for Consumer Goods
KOREA TIME 95.08.08 PAGE 09 SECTION BUSINESS

}}. He said the government will dismantle the
system whereby makers run and control exclusive distribution networks. A
Ministry of Finance and Economy official said the government has no way
of"artificially" preventing sales outlets from selling the same type of product from
different companies.
It is clear that manufacturers ask their sales agencies to sell their brands at the
price they indicate and not to deal in products from other competing companies{{). This is a clear violation of the nation's Fair Trade and Anti- Monopoly Act.
}}.
But the Fair Trade Commission cannot investigate the practice as manufacturers and
sales agencies do not have any written contract to that effect. In practice, however,
distribution agencies must risk closure of their shops when they sell products from
rival companies.
In a move to put pressure on manufacturers to open up their distribution
networks, the government has begun to publish price differentials between local and
foreign products. This will force makers to lower prices which they have set at
arbitrarily high levels.
The government will also move one step toward shifting the producer-oriented
economy into a consumer- oriented one. From April next year, it will be easier for
consumer organizations to be set up.
Ultimately, the government hopes this will lead to the breakdown of the exclusive
distribution system. The government said it will soon lift its ban on imports of
Japanese consumer products, including electronics products, to put pressure on local
makers to lower prices.

The Lifting of DiscountSales Period at Department Stores
Amid the buying spree of the ongoing sales period of department stores, most
discount outlets like Kims Club and Price Club have suffered from sluggish sales{{). Discount Outlets Hit by Department Stores Sales
KOREA TIME 96.04.18 PAGE 08 SECTION BUSINESS

}}.
They have seen a sharp decrease in sales by about 16-30 percent from the time
when the bargain sales period began. The Price Club, operated by Shinsegae
Department Store, saw a 29.7 percent drop in sales volume from the same period last
year during the first three days after the sales began April 12. Its sales amount
reached 1.236 billion for the three days.
The department store's E-Mart also saw a drastic decrease in sales volume by
16.4 percent at its Ilsan branch outlet and a 16.3 percent drop in Changdong in
northern Seoul. The Seoul branch outlet of the Price Club run by New Core
Department Store also recorded a 23.3 percent decrease in sales amount with 945
million won, while its Suwon outlet in Kyonggi-do province marked 885 million won
in sales, a 17.5 percent drop.
The Fair Trade Commission (FTC) plans to have the limit on the periods
department stores can conduct discount sales abolished next year{{). Discount Sales Period Limits at Department Stores to Be Lifted
KOREA TIME 96.07.16 PAGE 09 SECTION: BUSINESS

}}.
It is said the deregulation will encourage competition among department stores to
sell their products at lower prices. Currently, no department store is allowed to
hold a discount sale that is longer than 15 days. On a cumulative basis, department
stores are banned from selling goods at discount price for more than 60 days a year.
It will closely check whether department stores put false price tags on their goods
and engage in exaggerated advertising. For example, it is alleged that many
department stores put price tags of 200,000 won on a suit whose actual retail price is
100,000 won. During the bargain sale period, they advertise the brand at a 50
percent discount to attract customers, even though it is not an actual discount sale.

Circulation Companies in Korea
Kim's Club, a membership warehouse discount club, operate all of its three
warehouse-type shops 24 hours a day, starting Oct. 1. The club, managed by New
Core Department Store, sells daily commodities at cheaper than wholesale prices to
both consumers and retailers who are members. One store is located in Chamwon-
dong, Kangnam-ku, southern Seoul, and the other two are in Pundang, a suburban
city of Seoul, and Suwon, Kyonggi-do.
The club has rearranged the shifts of sales people at the shops for
round-the-clock operations{{). Kim's Club to Operate Shops Round-the-Clock From October
KOREA TIME 95.09.23 PAGE 08 SECTION BUSINESS

}}. New Core decided to introduce the new business
system to attract working couples with little daytime hours, and to give retailers an
opportunity to purchase goods after hours. It is necessary to extend the operation
hours due to the growing number of members. In particular, they have decided to
run the shops at night to lessen traffic jams for retailers buying massive quantities
of daily goods.
Now the department store opens six or seven more shops in the metropolitan
area, including one in Kuwol, Inchon, Chungdong, Pyongtaek and Kwachon,
Kyonggi-do by the end of this year.
Price Club, a large-scale membership discount store chain owned by the same
people who run Shinsegae Department Stores, opens outside of Seoul for the first
time since its launch in Oct. of 1994{{). Shinsegae to Open Price Club in Taegu
KOREA TIME 96.03.08 PAGE 08 SECTION BUSINESS

}}.
Shinsegae recently began constructing its second Price Club outlet in Taegu's
Sankyok-Komdan commercial complex, a five-story building with another five stories
underground and a sales area of 11,880 square meters, larger than its
9,240-square-meter Yangpyong store in Seoul.
Scheduled for completion in May of 1997, the membership warehouse store will
carry more than 3,000 items at prices with markdowns ranging from 20 to 50
percent.
For the convenience of customers, the membership chain store decided to provide
parking for more than 700 passenger vehicles on the first through the fourth floor. In
level one of the basement will be the grocery section and snack bars. Non-food
items such as consumer electronics, garments and toilet products will be on the
second level underground.
Lotte Department Store will jump into the discount sales business to hedge
against the diminishing growth of its department store sector caused by the economic
slowdown and growing competition from other types of retail stores{{). Lotte Jumps Into Discount Sale Biz
KOREA TIME 96.10.13 PAGE 08 SECTION BUSINESS

}}.
Lotte, which has been operating a trial discount sales outlet, L Mart, in the
basement of its Pusan store since August last year, will open other such outlets next
year following the good showing of the Pusan L Mart.
The company plans to open a super center, a kind of membership discount outlet,
in its Boramae building in Kwanak-ku, southern Seoul next August, a spokesman
said.
The Boramae building under construction by the Lotte Group will have 36 stories
and seven underground levels and a total floor space of 89,100 square meters.
The first and second underground floors will house the warehouse-type discount
sales outlet, which aims to attract retail and wholesale consumers in Kwanak and
Tongjak areas where no discount sales outlets are available.

Distribution Market Opens Wider to Foreigners
This year, Korea's distribution market opens wider to foreigners, with the
restrictions on the number of retail shops and their floor space lifted.
The current ban on foreign retailers from opening more than 20 shops across the
country was scrapped{{). Distribution Market to Open Wider '96
KOREA TIME 95.12.21 PAGE 09 SECTION: BUSINESS

}}. This paves the way for non-residents to open as many
retail shops as they wish across the country. The existing rule that prohibits
non-Koreans from maintaining a floor space of 3,000 square meters in each shop,
was also scrapped.
Eighty-eight out of the 195 industrial sectors that are currently closed or partially
opened to inbound direct investment will be newly opened to foreign competition, the
Ministry of Finance and Economy announced.
Foreign marketers, having been allowed to open stores here this year, are at
present girding their loins to make a splash, posing a serious threat to domestic
companies{{). Foreign Retail Firms Rushing In
KOREA TIME 96.01.06 PAGE 08 SECTION BUSINESS

}}.
Equipped with lean-and-mean management knowhow and great financial
capabilities, some of them have already secured land for sales outlets in major cities
across the nation but mainly in the Seoul metropolitan area.
Some 60 foreign marketing companies penetrate the Korean market. Among
them, Korea Makro, a joint venture company by a Korean concern, the Netherlands'
Makro and Carrefour from France, is among the quickest movers.
Korea Makro Co. opens a massive discount outlet in Inchon Jan. 17. It will set
up similar stores in Ilsan and Yongin in Kyonggi-do around the end of this year.
The Inchon sales center covers some 4,000 pyong (one pyong is 3.3 square
meters) on 10,000 pyong of land. For the sales places in the metropolitan area and
Taejon, the company has reportedly purchased sites ranging from 6,000 to 9,000
pyong.
The company is armed with a sharper competitive edge than domestic rivals like
Kim's Club and Price Club as it will provide consumers with a greater variety of
goods at cheaper prices.
The company plans to set up some 10 sales places by the year 2000 and has a
sales target of more than 100 billion won a year. Makro Co. is widely regarded as
the biggest marketing company in Netherlands, according to an official at the
Netherlands Embassy.
Carrefour, for its part, opens a 3,500-pyong hypermarket in Puchon in June
before setting up a huge discount outlet in Pundang, Kyonggi-do, next year.
The marketing company has also bought or is seeking land for sales places in the
major cities across the nation. Wall Mart, and K-Mart from the United States, Marks
and Spencer from Britain and Japanese marketing companies have accelerated effort
to make inroads into the domestic market, by, for example, seeking joint ventures
with Korean companies.

Chaebols and Foreign Retailers
The Korean retail industry is bracing for an influx of foreign rivals this year with
over a dozen large-scale discount stores and hypermarkets preparing to make forays
into the domestic market{{). Chaebol Seek Avenues to Join Hands With Foreign Retailers
KOREA TIME 96.02.28 PAGE 08 SECTION BUSINESS


}}.
Some 20-30 multinational corporations are in the process of entering the
domestic retail market either through joint ventures with local companies or alone{{). report released by the Samsung Economic Research Institute . 1996 Feb..
}}.
These newcomers follow on the heels of some 100 other retail-related multinational
corporations that already made inroads here last year.
Among the companies planning to enter the market this year are eight from the
U. S., four from Japan, two from France and one each from Taiwan and Great
Britain. All of the American retail companies that are coming, like Kmart,
Wal-Mart, Sears and others, with the exception of mega toy store, Toys "R" Us,
will set up joint ventures with local businesses.
The Japanese supermarket chains Daiei and Seiyu are presently involved in
opening branch offices and expanding outlets here while discount store Yosoku is
negotiating a joint venture with Cheil Food and Chemicals. Department store
Mitsukoshi is also planning to open a store here within this year.
Gallerie Lafayette of France in cooperation with Sungwoo Fashion and a French
hypermarket will muscle into the local retail market as well.
So far, Electrolux of France had been the only consumer electronics company to
invest here directly with 3.8 million dollars in 1993 but now this is about to change
with other Japanese and European makers planning direct marketing strategies.
Britain's Marks and Spencer, a discount store and the Taiwanese home appliance
wholesale business, Tate, are also aiming to join the Korean market. A British
retail giant is making its mark as one of the most desirable business partners among
Korean firms that wish to expand into the retail business industry{{). Korean Retailers Seek Biz Ties With Marks & Spencer
KOREA TIME 96.07.09 PAGE 08 SECTION BUSINESS

}}.
Marks & Spencer is a British department store that mainly deals with middle-and
moderately-priced products, maintaining the highest profit earning rate for years in
the world's retail business industry. It is also widely known for its unique
customer service, quality control and superior management techniques.
According to industry sources, the British firm has made contacts to sound out
business opportunities in Korea with Samsung Corporation, the Lotte Group,
Shinsegae Department Store and the Daesung Group. With its sound financial base
and proven ability to branch out into new fields, prospects for a joint venture
between Samsung and Marks & Spencer are good, said industry analysts.
As for the terms for the business partnership, the British retailer is requesting
that its products be purchased for a certain period of time, and Korean negotiators
are wooing the British firm with favorable terms on store space and publicity
activities, said industry insiders.
The nation's retail market formally opened to foreign competition as of January 1
this year. However, multinational distribution giants have been already involved in
the domestic market in one way or the other since the early 1990s.
With this latest market development, Korea's major conglomerates, including
Daewoo, Kolon and Sunkyong, will be expanding their retail business sector through
joint ventures.

Ⅵ. Problems on 'Price Destruction'
The problem is that Korean retailers are too weak to defend their turf from the
onslaught of foreign multinationals. Domestic retailers still rely on old-styled
marketing techniques that stood them in good stead when they had a protectionist
shelter, whereas U. S. multinationals and other foreign companies have an array of
business weapons -advanced sales techniques, marketing expertise and sophisticated
services. .
Many Korean retailers are afraid that they will go belly-up because of the full
market opening, according to a survey. They also predict the local distribution
market will become the province of big foreign and domestic companies with small
and medium sized firms being pushed out and going bankrupt, frustrating dreams of
harmonious industrial development.
Some suggest that the government should adopt a compensation system under
which the beneficiaries of deregulation will give back to victims part of the profits
they have earned from the market opening policy. The government is also urged to
bring small-scale retailers up to speed so they become more systematic and
productive and pursue a specialization-oriented track. And the local distribution
industry has to place more emphasis on promoting services to meet the changing
needs of both producers and consumers.
Also raising concern is the possible disruption of the nation's manufacturing base
with the new liberalization climate. Foreign multinationals are bringing in
high-quality, low-priced goods from around the world. They can force Korean
makers to supply goods at prices which leave the local industries with almost no
profit. All of this is partly the result of the Korean predilection for conspicuous
consumption and the desire for expensive high-profile brands which have prompted
foreign giants to flex their muscles here.
Cited as disastrous examples of the effect of the opening of markets are
Southeast Asian countries like Malaysia and Thailand where U. S., Japanese and
European companies are fighting like cats and dogs for market share. To help
Korean manufacturers here acquire the ability to compete with the foreign rivals on
an equal footing, top priority should be placed on manufacturing excellence.
In particular, new types of retail outlets need large amounts of floor space and
spacious parking lots. These kinds of sites are only found in the environment of big
cities near highways where real estate prices are relatively low. Placing them
anywhere else creates traffic jams and environmental problems. However, many
regulations prevent retailers from buying such low-priced land to construct the
stores. The government should implement a policy of attracting large outlets to the
outskirts of major cities and expedite deregulation to help domestic retailers survive
the now boundless global economic war.

Ⅶ. Conclusion and Prospect
A powerful army of foreign retailers prepares to muscle into the Korean market,
with the nation having opened nearly all franchising, brokerage, retail and wholesale
sectors to foreign investment on Jan. 1 this year{{). Foreign Retailers
KOREA TIME 96.01.26 PAGE 06 SECTION

}}.
This unlimited foreign access to domestic distribution networks will drastically
change the local market landscape - and deal a harsh blow to poorly-financed small
and medium sized retailers. Already, over 100 foreign corporations are enjoying high
sales through "price-destruction" retail outlets called hypermarkets, superstores,
discount stores (DS) and membership-only warehouse DSs (MWC). Another 60
giants are set to enter the Korean market this year. Among them are such
well-known names as Marks & Spencer, K-Mart, Sam's Club, Sears, Kafu, and
Promodes. Also in the wings are major Japanese conglomerates ready to invest
enormous amounts of money in this sector.
Leading the van of this foreign incursion is Makro Korea, a Dutch-Korean joint
venture which opened an MWC this Jan., the largest retail outlet in Korea so far, in
Inchon, offering some 10,000 kinds of products in a spacious store. The company has
declared it will offer the lowest prices in the nation.
Stimulated by Makro Korea's aggressive sales tactics, the nation's leading
discount stores have recently cut prices on most of their products by up to 30
percent. The first-ever "price-slashing war" among local and foreign retail giants in
Korea is expected to shake the distribution structures of regional department stores,
supermarkets and manufacturers' agents.
Of course, the opening of the local distribution market has some positive points
about it: The Korean wholesale and retail industry will have to enhance its
competitiveness to take on the strong foreign rivals, local manufacturers will have to
improve the quality of their commodities to compete with those of their foreign
counterparts, and consumers will have more choices to choose from. The escalation
of "price-destruction" can also help stabilize prices.
Sustainability of Price Destruction? Whether price destruction is sustainable or
is simply a boom can be tested by the movements of margin (which is taken from
sales into sales profits). The conclusion is that price destruction will probably
continue for a long time due to the following reasons.
First, newcomers --so-called discounters-- who have accelerated price destruction
can keep their margin by continuing the reduction in costs.
Second, existing distributors such as department stores, facing price destruction,
have tried to reduce their margin by improving the efficiencies of the distribution
system.
Gone are the days when Korean companies had to deal with only each other and
domestic consumers{{). Korean Firms Accelerate Globalization
KOREA TIME 96.03.04 PAGE 08 SECTION BUSINESS

}}. With the nation's rapid economic growth, industrialization and
changes in the business and financial landscape, companies now not only face foreign
competition on their home turf but are struggling to do business in a more
competitive environment - the rest of the world.
Last year, Korea reached the 100- billion-dollar mark in exports with 126 billion
dollars. This year, economists are predicting a trade volume of around 300 billion
dollars and, with that, the nation hopes to become the 10th largest trading power in
the world. It was also eager to join the club of the world's well-to-do, the
Organization for Economic Cooperation and Development.