International Business Analysis of South Korea - Essay Example

International business analysis: south Korea Introduction South Korea, country in northeastern Asia that occupies the southern portion of the Korea Peninsula; officially known as the Republic of Korea. South Korea is bounded on the north by North Korea; on the east by the East Sea (Sea of Japan); on the southeast and south by the Korea Strait, which separates it from Japan; and on the west by the Yellow Sea. The capital and largest city is Seoul. The nation of South Korea was established in 1948 following the post-World War II partitioning of Korea between the occupying forces of the United States in the south and the Union of Soviet Socialist Republics (USSR) in the north. After the Korean War (1950-1953), South Korea rose from devastation to become one of the world’s largest economies in the 1990s. Demography of South Korea South Korea occupies the southern half of the Korea Peninsula, which extends about 1,000 km (about 620 mi) southward from northeastern China. The total area of South Korea is 99,268 sq km (38,328 sq mi), including about 3,000 islands. South Korea is a mountainous country. Lowlands, located primarily in the west and southeast, constitute only 30 percent of the total land area. South Korea can be divided into three general regions: an eastern region of high mountain ranges and narrow coastal plains; a western region of broad coastal plains, river basins, and rolling hills; and a southern region, where a maze of mountains and valleys in the west contrasts with the broad basin of the Nakdong River in the southeast. Culture of South Korea Historically, Korea was strongly influenced by Chinese culture and acted as a conduit of culture from China to Japan. Koreans adapted many Chinese art forms with innovation and skill, creating distinctively Korean forms. For many centuries, metalwork, sculpture, painting, and ceramics flourished throughout the Korea Peninsula. Buddhism provided one of the most significant sources for artistic expression. Confucianism, also prominent, emphasized the importance of literature and calligraphy, as well as portrait and landscape painting. Pro-Western Life Style: Koreans began to incorporate Western forms after Korea opened itself to the Western world in the late 1800s. During the period of Japanese colonial rule (1910-1945), indigenous traditions were strongly discouraged. Since then, however, Koreans have made a concerted effort to keep their cultural traditions alive. Koreans possess a deep appreciation for their cultural heritage. The government encourages the traditional arts, as well as modern forms, through funding and education programs as well as sponsorship of a national competitive exhibition each year. Literature Korean literature can be classified chronologically into classical and modern periods. Korean classical literature combined indigenous folk traditions with the religious and philosophical principles of Buddhism, Confucianism, and Daoism. A male-dominated educated elite developed the classical body of literature from earliest times to the end of the Chosŏn dynasty in 1910. They wrote in the Chinese script. The Korean script, Hangeul, was introduced in 1446 but did not gain widespread acceptance as a literary language until the 20th century. The accessibility of Hangeul to all classes expanded the social base of Korean literature during the modern period. Art Contemporary Korean artists employ both traditional and Western forms in their works. Traditional handicrafts such as lacquerwork (often inlaid with mother-of-pearl), embroidery, and ceramics are produced for artistic and commercial purposes. Modern Korean art draws on a long history of cultural development and artistic achievement. Education South Korea has a high literacy rate, as 98 percent of the adult population can read and write. Primary education is free and compulsory for all children between the ages of 6 and 14. Secondary education consists of three years of middle school and three years of high school. In the 2000 school year some 4 million pupils were enrolled annually in kindergarten and elementary schools and 4 million in middle and high schools, including vocational high schools. Private schools play an important role, especially above the primary level. There are more than 300 institutions of higher education in the country, with a total annual enrollment of 3.2 million students. The principal universities are Korea University (founded in 1905), Seoul National University (1946), Ewha Women’s University (1886), and Yonsei University (1885), all in Seoul. Major universities, both private and public, are also located in provincial capitals. Agriculture Land distribution programs were carried out in South Korea in the late 1940s, creating an agricultural system composed primarily of small, owner-operated farms. The rapid industrialization of South Korea and increasing urbanization has diminished the importance of farming to the country’s economy, and the number of families dependent on agriculture for their livelihood steadily declined beginning in the 1970s. About 17 percent of the land in South Korea is under cultivation. More than half of the agricultural land is devoted to rice, the principal food crop. Other leading crops include soybeans, red peppers, barley, cabbages, watermelons, garlic, onions, radishes, white potatoes, red beans, corn, and sweet potatoes. Many types of fruit are grown, especially apples, oranges, grapes, persimmons, pears, and peaches. Other crops include cotton, hemp, and silk. Livestock include pigs, cattle, and goats. Manufacturing Manufacturing is dominated by chaebol, large conglomerate companies with greatly diversified interests. South Korea is an important producer of telecommunications and sound equipment and transportation equipment. Shipbuilding is a major industry. Other leading industries include the manufacture of chemicals, machinery, food products and beverages, basic metals, and textiles. Communications Mass media have assumed large importance in South Korea. Freedom of the press has been constitutionally guaranteed since 1987, when a democratic system of government was instituted. This resulted in the reemergence of newspapers that had been banned under the preceding military regime, as well as the establishment of many new newspapers. South Korea has 60 daily newspapers, some with national circulation. In 2000 there were 364 televisions and 1,039 radios for every 1,000 people in South Korea. In 2005 there were 794 cellular telephone subscribers per 1,000 people. Government in South Korea South Korea has been governed under six constitutions, adopted in 1948, 1960, 1962, 1972, 1980, and 1988. Each constitution signifies a new South Korean republic. Thus, the government under the 1988 constitution is known as the Sixth Republic. The most recent constitution was approved by referendum in October 1987 and went into effect in February 1988. Executive Branch Executive power is vested in a president who is directly elected by popular vote to a nonrenewable five-year term. The president is responsible for deciding all important government policies. The president performs executive functions through the cabinet, called the State Council. The prime minister is the principal executive assistant to the president. The president appoints the prime minister with the approval of the legislature, or National Assembly. The president heads the State Council and appoints its members on the recommendations of the prime minister. The council must include at least 15 and no more than 30 government ministers, including the prime minister. The prime minister and the members of the State Council have the right to supervise the administrative ministries, deliberate major national policies, and voice opinions at meetings of the National Assembly. Legislative Branch Legislative power is vested in the unicameral (single chamber) National Assembly. The assembly’s members are elected by a dual-ballot system in which voters cast two votes: one for a specific candidate and one for a party under proportional representation. This system was introduced in the 2004 legislative elections to allow for a more accurate reflection of party preferences. Under proportional representation, members are selected from party lists in proportion to the overall vote. All members serve four-year terms. Judicial Branch The highest court in South Korea is the Supreme Court, consisting of 14 justices (including the chief justice). Below the Supreme Court are five appellate courts, located in Gwangju, Busan, Daegu, Daejeon, and Seoul. District courts, which are located in the major cities, have jurisdiction over civil and criminal cases of the first instance. South Korea also provides for a Constitutional Court, which passes judgment on the constitutionality of laws (when requested to do so by the courts), impeachment matters, and the dissolution of political parties. Local Governments For purposes of local administration, South Korea is divided into nine provinces and seven cities with provincial status. The nine provinces are Gyeonngi Province, Gangwon Province, North Chungcheong Province, South Chungcheong Province, North Gyeongsang Province, South Gyeongsang Province, North Jeolla Province, South Jeolla Province, and Jeju Province. The seven provincial cities are Incheon, Gwangju, Busan, Daegu, Daejeon, Seoul, and Ulsan. The governors of the provinces and mayors of the seven provincial cities are elected by the people every four years. Political Parties The main political parties in South Korea are the liberal Uri (Our Open) Party, the conservative Grand National Party (GNP), the centrist Millennium Democratic Party (MDP), and the left-wing Democratic Labor Party (DLP). Defence he president is commander in chief of the armed forces. In 2004 total active military forces stood at 687,700. Membership was as follows: army, 560,000; navy, 63,000; and air force, 64,700. Reserve forces total 4.5 million. Thousands of U.S. troops are also stationed in the country. Economy of South Korea Overview South Korea’s economy was traditionally based on agriculture but experienced extraordinarily rapid industrialization beginning in the early 1960s. After the Korean War (1950-1953), economic aid, especially from the United States, was important to the economic recovery of the country. Subsequently, the government of South Korea gave priority to the development of manufacturing, which was driven by export-led growth. In the span of a generation, South Korea grew from one of the world’s poorest countries to one of its most promising industrial powers. Korean Currency Following are the specimen of currency notes of 10,000 and 1,000 worh in use in South Korea: Economic Planning Since the late 1980s, the government has allowed market forces to determine economic development. Previously, the government had exerted strong influence through a series of five-year economic plans, which had promoted industrialization. To achieve the goals of these plans, the government directly intervened in the economy by offering strong incentives to businesses, regulating foreign exchange, and implementing highly centralized fiscal policies. GDP Growth Rate South Korea’s gross domestic product (GDP) expanded by more than 9 percent yearly between the mid-1960s and the mid-1990s. By the mid-1990s economists referred to South Korea, Hong Kong, Singapore, and Taiwan as Asia’s “Four Tigers” because they rapidly achieved high economic growth and a standard of living among the highest in the world. Nevertheless, South Korea was one of many Asian countries that suffered economic decline during a regional economic crisis in 1997 and 1998. During the crisis, several of South Korea’s largest conglomerates, called chaebol, went bankrupt and collapsed. The Korean economy continues to expand. Real GDP growth, which had slowed to 4 percent year on year in the first quarter of 2007, recovered to 5 percent in the second quarter (the same pace as in 2006 as a whole). Trade and Commerce Growth was mainly led by improving domestic demand, as well as continued strength in exports. Exports have maintained a double-digit real growth thanks to solid demand from the Euro zone and China, in the face of strong won appreciation against the dollar. Facility investment and consumption rose respectively by 11.9 percent and 4.2 percent in the second quarter, backed by strong exports and solid equity prices. Robust exports and a steady rise in domestic demand are expected to sustain the momentum of growth in the latter part of 2007 and in 2008t, resulting in GDP growth of 4.8 percent in 2007and 5.1 percent in 2008. Inflation Headline consumer price inflation has been stable, running at 2.3 percent in the third quarter of 2007, below the central bank’s medium term target range of 2.5-3.5 percent. Although consumer prices remain subdued, the Bank of Korea raised the overnight call rate twice by 0.25 percentage point to 5.0 percent in July and August. The overnight call rate target had been held at 4.5 percent for the previous 10 months. The Bank of Korea expects that inflation pressures may increase from the second half of this year into the first half of 2008 due to economic recovery, higher asset prices, the growth of liquidity and higher international oil prices. Current Account and Balance of Payment The current account remains broadly in balance while net capital inflows continue at moderate rates. Double-digit export growth has been offset by high oil prices and a widening services account deficit. The services account deficit continued to expand as the demand for travel and education abroad increases. For the first eight months of 2007, the current account totaled a surplus of US$ 0.5 billion, with a surplus of US$ 19.0 billion on goods and a deficit of US$ 14.7 billion on services. Current Account Trend Source: Bank of Korea The current account is likely to continue in broad balance this and next year. The capital account recorded a surplus of US$ 11.7 billion for the first eight months of this year. Short-term external borrowing, surged by US$ 37.9 billion during this period, and was a main factor in the overall net capital surplus, given net outflows of direct investment and portfolio investment. Net capital inflows are anticipated to moderate as demand for hedging by shipbuilders slows and capital outflows by domestic investors increase, thanks in part to easier regulations and expanding tax incentives for overseas investment. Capital and Financial Account Trend Source: Bank of Korea Foreign Exchange Reserves Meanwhile, foreign exchange reserves reached US$ 257.2 billion in September 2007, up US$ 18.3 billion over the end of 2006 (East Asia Update 2008). Fanatical Crises The economic crisis highlighted underlying structural weaknesses in South Korea’s economy. Close links between government, banks, and chaebol had allowed the conglomerates to borrow heavily from domestic financial institutions to help them finance high-risk investments. In consequence, the chaebol accrued extremely high levels of debt. The collapse of chaebol, which created a high incidence of nonperforming loans, caused havoc in the banking sector. Meanwhile, the value of the national currency plummeted, losing more than half its value by the end of 1997, and inflation and unemployment soared. Management of Public Finance In December 1997 South Korea accepted one of the largest aid packages ever arranged with the International Monetary Fund (IMF). The terms of the aid package required South Korea to pursue economic reform, including restructuring of the corporate and financial sectors. The South Korean government transferred government-owned assets to the private sector, opened the domestic market to more foreign competition, and required chaebol to lower their debt-to-equity ratios. The country’s economy recovered in 1999 and sustained growth into the early 2000s. In addition, South Korea repaid all its IMF emergency loans by mid-2001. In 2005 South Korea’s annual budget figures showed revenues of $168.4 billion and expenditures of $184.1 billion. The GDP in 2005 stood at $787.6 billion. Labor Force: Employment Index In 2005 the total labor force was 24 million. Of this figure, some 8 percent were engaged in agriculture, forestry, and fishing; 27 percent in industry; and 65 percent in services. Women make up 41 percent of the labor force. The principal labor organization is the Federation of Korean Trade Unions, with a membership of about 1.5 million. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers’ legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective). The following table and graph depict a clear picture of employment in South Korea: conclusion Korea is an example for developing countries in many ways. Admittedly, there are unique aspects of the country that limit the direct applicability of lessons to be derived: ethnic and cultural homogeneity, a strong Confucian tradition that places High value on education, achievement and loyalty to the nation, a security threat, and political leadership. In addition, some features of the country are typical of the Asian model of development and growth, which cannot easily be replicated in other cultures, among them, a strong state involvement in the orientation and management of the economy, very high saving and investment rates, and an industrial organization well fitted to mass production. A number of key features of the Korean experience help illustrate how a country can gradually build a knowledge-based economy with approaches to follow and pitfalls to avoid. Bibliography (also for further study) 1. Government of the Republic of Korea, Korea Development Institute, 1999. DJnomics: A New Foundation for the Korean Economy. Published for the Ministry of Finance and Economy. Seoul. 2. International Institute for Management Development, 2005. The World Competitiveness Report, Lausanne, Switzerland. 3. Korea Industrial Technology Association, 2004. Major R&D Indicators. Seoul. 4. Ministry of Education and Human Resource Department. Various years. Statistical Yearbook of Education. Seoul. 5. Mitchell, Graham R., U.S. Department of Commerce, Office of Technology Policy, 1997, Korea’s Strategy for Leadership in Research and Development, Washington, D.C. 6. Ministry of Education and Korea Educational Development Institute, 2005. Statistical Yearbook of Education, Seoul. 7. Nam, Duck-Woo, 1997. Korea’s Economic Growth in a Changing World, Samsung Economic Research Institute, Seoul. 8. Organization for Economic Co-operation and Development, 2004. Learning for Tomorrow’s World—First Results from PISA 2003. Paris. 9. Organization for Economic Co-operation and Development, 2005a. Education at a Glance. Paris. 10. Organization for Economic Co-operation and Development, 2005b. OECD Science, Technology and Industry Scoreboard. Paris. 11. Organization for Economic Co-operation and Development, 2005c. Promoting Adult Learning. Paris. 12. Organization for Economic Co-operation and Development and Knowledge for Development Report, 2005, The report Korea and the Knowledge-based Economy: Making the Transition. Paris. 13. World Bank Country Report, 2008, Korea as a knowledge economy: Evolutionary Process and Lessons Learned, Washington D.C. 14. World Bank Group, Doing Business Project, 2008, Doing Business in Korea, New York. 15. World Bank, 2008, East Asia Update: Korea. 16. World Bank. 2006. Knowledge Assessment Methodology. New York. Read More