Japanese, S. Korean companies team up to take on Chinese rivals
BY TAKESHI KAMIYA STAFF WRITER
Five Japanese steelmakers, South Korea's Posco and trading company Itochu Corp. have invested in this iron ore mine in Brazil. (Itochu Corp.)
Although the rivalry between Japanese and South Korean companies has intensified, they are increasingly cooperating in ventures abroad to prevent Chinese competitors from getting too far ahead.
Tokyo and Seoul are also providing support to such ventures in terms of official development assistance and investment.
The similar industrial structures of Japan and South Korea mean many companies are seeking the same energy and natural resources that are also being aggressively pursued by companies from China.
On Thursday, South Korean steelmaker Posco announced a joint investment plan in CBMM, a Brazilian rare metals mining company. The other partners are major Japanese steelmakers, such as Nippon Steel Corp. and JFE Steel Corp., trading company Sojitz Corp., as well as government-affiliated institutions from Japan and South Korea.
CBMM has an 80-percent share of the global market in niobium, a rare metal essential for producing high-grade steel products used in automobile production.
Because China is also seeking to increase its procurement from CBMM, the companies from Japan and South Korea joined hands to ensure a stable supply.
Last year, the Japanese government revised laws to allow Japan Oil, Gas and Metals National Corp. (JOGMEC), which supports the procurement of mining resources around the world, to invest in mines abroad from the production stage. The investment in CBMM was the first by JOGMEC since the legal revision.
Other cases of cooperation between Japanese and South Korean companies have formed.
At the Marubeni Corp. trading company, Masumi Kakinoki is the chief operating officer of the Power Projects and Infrastructure Division. His first overseas business trip this year was in mid-January to South Korea, where he met with executives of Hyundai Heavy Industries Co. and Samsung Heavy Industries Co.
The huge electric power generation plants being constructed mainly in the Middle East can often cost at least 100 billion yen ($1.21 billion). While German company Siemens and others have strengths in core plant equipment, such as turbines, they only account for between 30 and 40 percent of the overall project cost.
The key to a successful project is reducing other costs, such as expenses for civil engineering and installation of other equipment.
"While there are some nations that choose Chinese companies based only on costs, when one considers dependability and the ability to control the entire process, South Korean companies are better," Kakinoki said.
In January, Mitsubishi Corp. brought in Korea Gas Corp. for a liquefied natural gas project in Indonesia.
The trading company secured Korea Gas as a stable buyer of LNG while having the South Korean company shoulder some of the financial burden.
Both Japan and South Korea are among the world's leading LNG importers.
In 2008, Mitsui & Co. established a joint venture with Korea Gas and Samsung C&T Corp. The joint venture won an order to build an LNG terminal from the Mexican government for $900 million (about 74 billion yen).
Another joint venture involves five Japanese steelmakers, including Nippon Steel, trading company Itochu Corp. and Posco.
The venture now imports iron ore from a Brazilian mining company, with 7 million tons a year going to Japan and more than 1 million tons heading to South Korea.
Chinese companies that have huge funds and are cost competitive also entered bids for that project.
"Rather than compete with South Korea, there was a need to partner with South Korean companies to take on China," an Itochu official said.
ODA projects funded by the two governments also help companies by improving the infrastructure in nations where the companies want to move into.
The Japan International Cooperation Agency cooperated for the first time with the Export-Import Bank of Korea last September to fund a road repair project in Mozambique.
In January 2010, South Korea joined the Development Assistance Committee of the Organization for Economic Cooperation and Development, making it an aid donor rather than recipient.
South Korea has plans to triple its ODA by 2015 to $3 billion (about 250 billion yen) a year.
Although Japan's ODA budget has been decreasing, it still set aside about 600 billion yen in fiscal 2010.
Analysts said with the high cost competitiveness of South Korean companies in plant construction, the two nations could reinforce each other, with South Korea focusing on infrastructure construction and Japan on the non-hardware aspects.
At the same time, there are limits to cooperation between Japanese and South Korean companies.
The Japanese government has made exports of infrastructure a major pillar for its economic growth strategy. Therefore, Japan and South Korea will likely compete fiercely for contracts abroad for the construction of nuclear power plants and high-speed railway systems.
As one trading company executive said about the economic relationship between Japanese and South Korean companies, "It is like one hand smacking the opponent while the other hand is shaking his hand."