New Exporters’ Export Continuity Hits Bottom in China
-Market diversification is more effective than item expansion to continue exports-
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While new exporters’ export continuity has improved compared to the past, Korean exporters’ export continuity to China appears to be lower than to the U.S., Japan, EU and ASEAN.
The Institute for International Trade for the Korea International Trade Association (President, Kim Geuk-soo, http://iit.kita.net) and the Small and Medium Business Corporation jointly published a report titled ‘The Status of New Exporters’ Export Discontinuity and Its Implications.” According to the report, the survey of 87,000 new exporters established between 2009 and 2014 shows that new exporters’ export continuity rate is 54.6 percent in 1 year, 34.7 percent in 3 years and 25.6 percent in 5 years. It implies that only 26 out of 100 new exporters continue to survive after 5 years of their businesses. The number is slightly higher1) than that of 2003-2008, when the exports were prosperous. It means that the exporters’ viability has improved.
1) Export Continuity Rate (companies established between 2009 and 2014): 54.6% (in 1year) → 41.5% (in 2 years) → 34.7% (in 3years) → 29.8% (in 4years) → 25.6% (in 5years)
Export Continuity Rate (companies launched between 2003 and 2008): 53.8% (in 1 year) → 39.8% (in 2 years) → 32.8% (in 3 years) → 28.4% (in 4 years) → 25.1% (in 5 years)
By item, the exporters in non-manufacturing industries such as second-hand cars, plastics, and garments experienced many changes due to the frequent new entries and suspensions while manufacturing-oriented items, including pyrotechnic and machinery, had less experiences of export suspensions.
By country, there were frequent new entries and suspensions in the largest export destination China and the export conditions to the country was deteriorated as the number of new exporters to China decreased while the number of suspended exporters increased. Moreover, in terms of the export continuity rate in each country, exporters’ export continuity rates for five years hit the lowest 19.9% in China, which was lower than in the other major countries like the U.S., Japan, EU and ASEAN. It means that China is the most difficult country for new exporters to survive. The empirical analysis also shows the continuity rates of the exporters to China are lower than those of the other countries. Therefore, it is urgent for the companies and the government to exert efforts to help the exporters to China improve their export continuity.
Meanwhile, all of the suspended exporters pointed out that the major factor for them to stop exporting was the market expansion. Also the empirical analysis shows that the expansion of the number of export destinations effects more on the export continuity rather than the increase of the number of item. Therefore, in order to resolve the export slump, the government and the supporting organizations need to significantly enhance their supports for the diversification of export destinations.
2) When a company exports to one more country, the possibility of its export continuity increases by 1.7%, whereas when one more item is added, the possibility goes up by 0.7%
Jang Sang-sik, a researcher at the IIT, said “The previous year’s total sales of the exporters who stop exporting in 2014 was 20 billion dollars. It means that if the export continuity rises, it can contributes not only to the considerable export expansion but also to fostering the future export businesses.” He also stressed “In the case of China, practical supports such as connecting the local distribution networks, expanding cooperation among Korean companies, and strengthening supports for localizing are needed n order to remove the entry barriers in China rather than providing temporary or simple matching services.”
