#Key Business Issue l 2020-06-01
South Korea’s exports decreased more than 20 percent on-year in the first 20 days of May. Apparently, the economic fallout from the COVID-19 pandemic is being felt. With countries in desperate need of a breakthrough following the global crisis, the acronym, HOUSE, has been suggested as a keyword for promising export markets in the post-pandemic era. This was introduced in a report by the Institute for International Trade at the Korea International Trade Association. Here is Sohn Chang-woo(손창우), chief researcher at the Institute, who wrote the report.
Korea’s exports came to 36.5 billion US dollars in April, down 25 percent from a year earlier. The sharp fall in exports is attributable to the global economic recession and decreased trade volume caused by the COVID-19 outbreak. The International Monetary Fund and the World Trade Organization have already projected their worsening outlook for the global economy and trade, and Korea will also inevitably see its exports decline. To boost sluggish exports, it is urgent to explore strategic export markets and nurture promising export items.
On May 28, the Bank of Korea predicted that the Korean economy may shrink 0.2 percent this year, signaling a sharp drop from its previous projection of a 2.1 percent expansion. It shows just how devastating the economic impact of the COVID-19 epidemic is. Just as seriously, the plunge in exports in April led to Korea’s first trade deficit in 99 months. Analysts forecast that the country’s exports in May will also fall 22.5 percent from the previous year.
Amid rising calls for exploring new export markets, HOUSE is cited as a possible solution. Researcher Sohn explains what HOUSE is all about.
The global pandemic has brought about changes in lifestyles and consumption patterns. Five notable areas of change are healthcare, online, un-tact services, smart infrastructure and homeconomy. HOUSE is a word created from the initial letters of the five words.
Pump-priming measures at the governmental level are mostly taken to improve medical and healthcare systems, expand smart infrastructure and promote office automation. Google search data shows that a large number of consumers all over the world searched words such as quarantine, healthcare, medical, leisure activities at home and un-tact consumption in March and April, while COVID-19 was quickly spreading throughout the world. As global consumer trends, major foreign research institutes, and media agencies—both in Korea and overseas—cite growing preferences for personal healthcare products, rising demand for services related to childcare and pets, and the expansion of homeconomy, smart work and un-tact services, there is growing evidence that the COVID-19 situation has changed people’s lifestyles to create new consumer trends.
Healthcare includes the treatment and prevention of diseases as well as health management. Stay-at-home orders push various activities online these days. In un-tact services, consumers and providers don’t necessarily have to meet face-to-face. Smart infrastructure that combines digital infrastructure and the existing physical infrastructure allows for a more efficient management of cities. Homeconomy, a combination of “home” and “economy,” is for people who prefer to spend time at home. These five markets have already come to surface.
In February and March, as COVID-19 emerged as a global pandemic, Korea saw a considerable rise in its exports of home appliances, daily necessities and processed foods. Markets for education and childcare have also grown significantly, with increased numbers of employees working from home and schools postponing their semesters. Experts say that it is necessary to tap into these markets aggressively after the pandemic abates. They also point out that promising export items may vary, depending on the region.
In the wake of the COVID-19 outbreak, the un-tact service market continues to expand in the U.S., with online orders from Amazon and food delivery services expanding. Large retail chains including Walmart have jumped onto the grocery delivery bandwagon, while the number of users of food delivery apps such as Uber Eats is increasing steadily. Rising demand for non face-to-face delivery translates to a business opportunity for delivery services using self-driving vehicles, drones and robots.
In the healthcare industry, more and more people avoid visiting gyms to work out, instead choosing to exercise at home. The use of Beachbody’s famous at-home workout programs increased more than 79 percent from last year. Dumbbells, yoga mats and exercise bikes remain atop the list of related search terms in Google and Amazon. In the home appliance sector, demand for home office products has risen, in line with the growing number of people working from home. The top 80 e-commerce businesses in the U.S. have seen their sales of computers climb 40 percent, compared to before the COVID-19 outbreak.
Korea’s exports to the U.S. amounted to 73.3 billion US dollars last year, accounting for 13.5 percent of its overall outbound shipments. To further increase its exports to the U.S.—one of Korea’s two major trade partners, along with China—Korea needs to focus on un-tact services, home office equipment and home appliances. Then, what about China?
China decided to focus on infrastructure investment earlier to offset the economic impact of the COVID-19 epidemic. At the Politburo Standing Committee on March 4, China announced that it would invest in seven areas of “new infrastructure.” These areas include 5G networks, ultra high voltage transmission facilities, inner-city rail systems, electric vehicle charging stations, data centers, artificial intelligence and the industrial Internet. Accordingly, Korea may focus more on its ICT export items such as modem chips, semiconductor components and network equipment needed to build 5G networks and smart grid systems.
Additionally, more and more Chinese are spending time at home after school or work, calling attention to markets for entertainment and education content. This could be an opportunity for Korea to market educational goods and other relevant products such as playbooks, toys and character goods for children in China.
In the wake of the COVID-19 crisis, China is showing greater interest in telemedicine. The industry has grown in the country since the introduction of relevant services in 2014. China’s telemedicine market is expected to reach 94.8 billion yuan or about 13.2 billion US dollars in 2025.
In Japan, where the number of confirmed COVID-19 cases has increased rapidly, markets for healthcare products and various un-tact services are also expected to grow. In Europe, people will likely consume more kitchen appliances and pet products, while demand for medical and hygiene products as well as personal IT equipment is expected to increase in India. In the Middle East, traffic infrastructure and construction equipment might be promising export markets.
Of course, Korea is not the only country to pay attention to these markets. Many countries are preparing for the post-pandemic paradigm, and Korea needs to come up with an effective strategy.
Growing uncertainties in the global economy are expected to make it difficult for Korean companies to find overseas markets. It is important to approach niche markets in consideration of global trends and promising items in particular regions. Many countries will likely strengthen their public healthcare systems. So, Korea may export both policy consulting and relevant systems through public-private cooperation. In addition, large and mid-sized companies may organize consortiums to advance into overseas social overhead capital markets together. Tech companies need to focus on technology related to telemedicine and un-tact services. They may also use information and export support programs provided by the Korea International Trade Association and the Korea Trade-Investment Promotion Agency.
The economic shock of the COVID-19 pandemic will bring about a radical change in the global industry. With new markets emerging at an increasing rate, it is necessary to brace for the post-COVID-19 period through intensive preparations.