S. Korea's ailing instrument makers try for a comeback

By Lee Haye-Ah
INCHEON, Sep. 6 (Yonhap) -- Once regarded as one of South Korea's top 10
strategic export sectors, the musical instrument industry here is struggling to
keep up with its foreign peers.

The industry has been on a rapid decline over the last 14 years due to rising
competition from low-wage developing countries on one side and the overbearing
dominance of industry leaders like Japan and the United States on the other. Now,
it is desperately exploring ways to avoid a total collapse.
Responding to requests for support, the government has suggested it might provide
help to instrument makers in terms of research and development.
In the past, South Korea mostly produced instruments in the middle price range.
But improving competitiveness is the key to ensuring the industry's survival,
according to some specialists, and price is no longer the deciding factor.
"We need to focus on boosting brand power and developing the electronic
instrument sector," said Jin Seok-gyu, Director of the Korea Musical Instrument
Industry Association (KMIIA) on the sidelines of the fifth international musical
instrument show, Music Korea 2009, held in Incheon, west of Seoul.
Last Thursday, Jin led a symposium on "Ways to Improve Competitiveness in the
Musical Instrument Industry", where industry insiders debated recovery measures
and appealed for government support before an official from the Ministry of
Knowledge Economy.
The country's musical instrument industry has been shrinking since 1995, when its
instrument sales peaked at 709 billion won (US$571 million). Since then, sales
have slipped, recording a mere 276 billion won in 2007. Exports also peaked at
$364 million in 1995 and have since nearly halved to $186 million last year.
The downturn had roots both abroad and at home.
Chinese-made instruments at the lower end of the price range put pressure on
prices worldwide, while overall demand was hit by two successive financial
crises. The Asian financial crisis hit instrument manufacturers here in 1997 and
11 years later, the U.S.-led world economic crisis weighed on demand.
Moreover, South Korea's rapid development of computer technology and high-speed
Internet infrastructure to become the world's most wired nation has turned more
young people towards computer games and away from music lessons, according to the
KMIIA.
The competitiveness of South Korean instruments on the world market is estimated
at 70 percent of the level of industry leader United States. As for brand power
alone, the country's instruments are recognized only half as much as those of
U.S. or Japanese brands, Jin said.
Both Samick and Young Chang, Korea's two well-known instrument makers, went
bankrupt in 1996 and 2004, respectively.
"In the 1980's, both Samick and Young Chang were strong enough to outperform the
Japanese brands, but the Korean manufacturers were too complacent. They should
have focused more on research and development, but instead they focused more on
sales," Park Seong-hwan, President of the Korean distributor of Austrian piano
maker Wendl & Lung, told Yonhap.
Samick was bought out by a private investor, Kim Jong-sup, in 2002, and Hyundai
Development Company salvaged Young Chang in 2006.
Since 2002, Samick has embarked on an aggressive investment strategy and started
this January to produce grand pianos in the U.S. state of Tennessee to compete in
the world's high-quality piano market. It now controls about 15 percent of the
U.S. piano market, it says. But the picture isn't as rosy as it seems.
"We also produce pianos in the middle-price range in China and Indonesia, where
labor is cheap. But those countries produce their own instruments, which are even
cheaper. So our products don't have competitiveness in terms of price," said Kim
Bu-hwan, production manager at Samick.
Young Chang, since 2006, has been looking to expand its market presence in China
and Russia, where rising incomes have increased demand for luxury items like
pianos and other musical instruments. The high level of demand for instruments in
China is similar to that of South Korea in the 1970s and 1980s but there is one
thing that sets China apart.
"The Chinese government, in light of last year's world financial crisis,
introduced tax benefits to encourage the consumption of musical instruments.
Greater consumption provides the basis for the Chinese instrument industry to
grow," said Kim Jeong-hyeon, managing director of the marketing and planning
office at Young Chang.
Competing with Japanese brands at the upper end of the price range is no less
challenging for Korean manufacturers.
"The Japanese government subsidizes the replacement of old pianos with new
Japanese-made pianos. The used instruments are then actively exported at low
prices to Southeast Asian countries like Malaysia," Kim explained.
"Such a strategy facilitates entry into new markets. About 80 percent of
Malaysia's piano market is controlled by used instruments. Ninety percent of
those used instruments are made by Japan's Yamaha. After conquering the used
instruments market, makers find it much easier to sell new instruments on the
same market as well, because of brand recognition among consumers," he added.
Used instruments in South Korea are mostly consumed domestically. Now, Young
Chang is asking the government to consider policies similar to those used in
China and Japan.
Development of better technology is also crucially important for the electronic
instrument sector. Young Chang bought the U.S. electronic instrument brand
Kurzweil in 1990 as part of its plan to tackle the fast-growing electronic
sector.
The government lacks a clear policy toward the musical instrument industry,
according to the Ministry of Knowledge Economy. But there are ways the industry
could receive help from the government.
"Our ministry runs a project that provide consumer goods makers with financial
support for their research and development (R&D)," said Lee Seung-jun, a ministry
official in charge of consumer goods industry policy.
"We select industries based on a survey of demand for the relevant goods. We
probably need to better publicize the existence of such projects, so that the
musical instrument industry can also apply," he said.
"Once we receive an application, we assess the industry's eligibility for R&D
aid. If the instrument industry can structure and present itself as being
prepared, we will actively search for ways to support it."
ecuedy@yna.co.kr
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