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2009/09/07 06:00 KST
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."