Comparative Study of Regional Finance and Industrial Partnerships in Japan and South Korea - Comparison of the Taegu and North Gyeongsang regions of South Korea and the Tokai and Kansai regions of Japan based on corporate questionnaire surveys

Author Name YAMORI Nobuyoshi  (Nagoya University) /HIRAKAWA Hitoshi  (Nagoya University) /CHOI Yong-Ho  (Kyungpook National University of South Korea) /JIN Byung-Yong  (Daegu Bank, Daegu Bank Economic Research Division, South Korea) /BU Gi-Duck (Daegu Bank, Daegu Bank Economic Research Division, South Korea)/PARK Man-Bong (Nagoya University)
Creation Date/NO. September 2008 08-P-006
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Professor Yamori has in the past conducted questionnaires about the Tokai (Tawada and Yamori: 2005) and Kansai regions (Tawada and Yamori: 2008) as a means of acquiring insight into the realities of finance for small and medium enterprises (SMEs) in Japan.

Now, with the cooperation of Daegu Bank Economic Research Division(the leading independent regional bank in South Korea) and Professor CHOI Yong-Ho of Kyungpook National University of South Korea, a questionnaire on finance and industrial collaboration among SMEs in the Taegu and North Gyeongsang regions (the regions that encompass Taegu, the third largest city in South Korea), has been conducted. This research paper identifies both commonalities and differences between Japan and South Korea by using the results of the survey and comparing them with those obtained from previous surveys conducted in Japan.

This latest questionnaire can be summarized as follows. Questionnaires were sent on August 8, 2007 to 2,500 companies (1,250 companies in Taegu and 1,250 companies in North Gyeongsang), randomly selected from 65,535 companies located in the two regions. Of these companies, 257 companies (134 companies in Taegu and 123 companies in North Gyeongsang), or 10% of the total number of companies that received the questionnaire, had responded by the end of September.

The questionnaires consisted of 51 questions in total. Questions 1 and 2 asked about the attributes of respondents, while questions 3 through 14 related to the general status of the responding companies. Questions 15 through 34 asked about matters related to the financial institutions the respondents dealt with, while questions 35 through 42 covered items associated with the industrial cluster in the Taegu and North Gyeongsang regions. Finally, questions 43 through 51 covered financing and the use of financial institutions in the regions.

As a result, both commonalities and differences between Japan and South Korea have become apparent.

The general finding from the above survey was the fact that regional financial systems in Japan and South Korea are very similar. For example, an overwhelming majority of SMEs in the United States deal with only one bank, while it has become apparent that SMEs in Japan and South Korea commonly deal with a number of banks. Consequently, the practice of dealing with a number of banks in Japan should not be regarded as something uniquely Japanese but rather considered to be a natural outcome of the particular social, economic, and legal systems.

In contrast, despite the fundamental similarities in the financial systems of Japan and South Korea, a number of differences have also been identified. For example, responding to a question about the positive aspects of current financial institutions, the provision of funds was more important to companies in the Taegu and North Gyeongsang regions, while the financial institutions' knowledge about the respondent's company was more important for companies in the Kansai and Tokai regions in Japan. In addition, with respect to the question about what kinds of services responding companies expect from banks, Japanese companies look for banks to provide extensive information associated with funding, in addition to the funding itself, while companies in South Korea valued the actual provision of funds. These differing mindsets appeared to primarily reflect the difference in the extent of damage from the currency crisis that took place in the late 1990s, and variations in the progress of economic development in Japan and South Korea; namely, while companies in South Korea have many investment opportunities, Japanese companies have already built up their internal reserves and have reached the stage of maturity. Based on these differences, there is likely much that the two countries can learn from one other.

Moreover, through this research, universal phenomena applicable to broader regional finance were also identified. For example, it has been pointed out that financial institutions and companies in the United States and Europe maintain a very close physical distance even in this age of highly advanced information technologies (Degryse and Ongena [2004]). Based on this research, it was confirmed that SMEs in Japan and South Korea also favor dealing with local banks. At present, the division of the financial market for SMEs into local regions is considered a universal phenomenon.

The following section of this paper explains the purpose and outline of this questionnaire. Then sections three through six present and analyze all questionnaire responses and finally, the seventh section summarizes the results of this paper.