Plastic Surgery Struggling in Korea? Some Untold Facts

The Unknown Truth About Economics in Plastic Surgery
The Seoul Gyopo Guide has spent a great deal of time in explaining howthe strong JPY, when compared to the KRW, has helped Korean exporters enormously. However, there are other unintended consequences to the strong Yen compared to Korean Won. There are two specific areas where this is true: this short post will focus on the cosmetic surgery (성형외과) industry.

This article in the New York Times describes some of the current difficulties in South Korea for the cosmetic surgery industry.. The story tells the tale of how both consumers and surgeons are struggling. More than anything else, the Seoul Gyopo Guide believes that it is rising inflation which has caused the need to curtail cosmetic procedures. Korea has been hit but an unsavory combination of facts: foot and mouth disease has driven the cost of everyday items such as pork and milk, energy prices are rising due to Middle East tensions, apartment prices in Korea continue to fall (not rise), borrowing by everyday Koreans continues to increase. That, of course, is one side of the equation. Less patients, less revenue. However, there is another side to the story which actually makes the situation worse than reported.

Strong Yen Hurts Korean Plastic Surgeons
The New York Times article correctly points out that the strength of the Japanese Yen and the Chinese Yuan have eased some of the difficulties facing cosmetic surgeons. That is only partially true. There are two extra points which the New York Times did not report, which are far more important. First, many of the real estate agreements for Seoul doctors’ offices are based on the Japanese Yen. What does that mean? It means that in order to buy/lease office space, the doctor borrowed in Yen, converted it to Won, and then used that money to buy the office. The rationale for that is that the interest rate is based on the Japanese interest rate, which is very, very low. HOWEVER, when the loan has to be repaid, it is a Japanese Yen amount that must be repaid.
Let’s take an example: a cosmetic surgeon wants to buy an office for 500,000,000 KRW. He/she borrows that amount in JPY, assuming that the JPY/KRW = 10.00, so the amount JPY borrowed is 50,000,000. When the loan is due, let’s say the JPY/KRW = 13.50 (close to current rate). Well, the surgeon owes JPY 50,000,000 which is now equal to 675,000,000 KRW (=JPY 50,000,000*13.5). That surgeon has lost 175,000,000 KRW when he repays the loan. On the other hand, he/she has also paid a lower interest rate during the time of borrowing than he/she would have if the borrowing was in Korean Won. This is called Yen-based borrowing/lending, and it is the cause of great additional stress on the surgeons (and other doctors in Korea).

It Gets Worse
In addition to the cost of real estate, cosmetic surgeons face another very large cost: equipment. As you probably know, most of the equipment used in cosmetic surgey is based on laser. Well, those machines cost a lot of money. Many surgeons, not all, but many, cannot afford to purchase these machines for cash. There are good reasons to not own a laser machine used for cosmetic surgery, most importantly is that technological changes will make machines obsolete quickly. So, the surgeons rationally choose to lease these machines. However, lease agreements for these machines still cost money, and a lot of it. SO, the surgeon borrows the money in Japanese Yen. Now all you need to do is go back up and read the previous example, and voila, you have the same thing. The surgeon has to pay a Yen amount.

The Strong Yen is Hurting Plastic Surgeons
The issue is that at the same time that demand for cosmetic surgery has declined, the costs faced by cosmetic surgeons themselves are not declining, and in fact, can be rising due to the strong Yen compared to the Korean Won. That is knows as being between a rock and a hard place. There was an interesting point in the New York Times article. That is that foreign patients come to Korea to have these procedures. It is true, but the beneficiaries of that influx will be few and far between.