This is the first in a series of short articles on doing business in Korea. The series will focus on important issues faced by foreign investors wishing to do business in Korea including the foreign investment promotion laws, the types of corporate presence foreign investors can have, business models, visas and taxation.
Korea – A historical background
The early part of the twentieth century saw colonial rule by Japan (1910-1945). At the time of writing – 15 August 2016 – it was the 71st anniversary of Korean independence. Then, it was one discrete (and geographically quite large) country. Shortly after, it disintegrated into a particularly brutal and bloody civil war, indeed, also the battleground of a much broader international ideological war between capitalism and Communism. The UN which was principally led by US and the British supported the south; China and the Soviet Union supported the north.
The Korean War ended with an armistice on 27 July 1953; the two Koreas, the Democratic People’s Republic of Korea (North Korea) and the Republic of Korea (South Korea) technically remain at war. There are instances of varying degrees of sabre rattling by the North on a fairly regular basis; the population in the south, unlike the world’s press, generally ignore it and go about their daily lives!
One reason is that part of the North’s ideology is predicated on a supposed “almost but not actual war” with the USA which supports the doctrine of “Military First” and the personality cult of the Kim dynasty; another is that when the boy cries wolf too often, he tends to get ignored. The press of course is always looking for copy.1
Geographically, Korea is sits between Japan and China. The interplay of geopolitics between the USA, China, Japan and the two Koreas is just as significant today as it was 70 off years ago but perhaps in a slightly different manifestation. Indeed, recently South Korea took possession from the USA of a defensive weapons capability – THAAD; China has retaliated by banning K Pop in China and tour groups going from China to Korea. Relations with Japan are frosty but the USA remains a staunch ally to both.
The paths of the two Koreas – one adopting a form of Stalinism, the other a form of capitalism have diverged. For a time, the north took the lead with the south in the 1950s being one of the poorest countries in the world. South Korea is now one of the richest; this has become known as the Korean economic miracle, or the “Miracle on the Han River”, the river that bisects Seoul.
Historically, South Korea has pursued a very specific economic strategy. The Korean government actively supported big family run businesses initially in heavy industry, construction and ship building and more recently in electronics and manufacturing. They tended to be run in a very militaristic way; this is partly cultural – Korea is a Confucian society – and partly because all healthy males must do national military service.
These companies, known as chaebol (pronounced cheh boll – conglomerates) come to have a significant degree of horizontal and vertical integration. The biggest chaebol, Samsung, is responsible for some 20% of the country’s GDP. There are certain problems inherent in a relatively small number of companies having a lot of power; there are also benefits which are quite evident: Korea has transformed itself into one of the richest countries in the world.2
Korea became a democracy in the period 1987-8. It suffered during the Asian financial crisis in the late 1990s and was forced for a number of reasons to open up its economy; it had up to that point pursued a very protectionist policy. This remains the case in certain ways – a sort of cultural inertia. It has however since signed Free Trade Agreements with a host of countries including significantly the USA and the EU and is open for business not least with its highly skilled and generally English speaking work force.3
South Korea is a world player in heavy industries and also in construction, shipbuilding and electronics. More recently, it has become an exporter of culture – hallyu (the Korean wave) – referring to the popularity of its entertainment industry – K Pop, dramas etc. particularly in China, Japan and southeast Asia.
There remain significant opportunities (and challenges) for foreign businesses wishing to do business in Korea. The process of democratisation is ongoing but it has a very politically engaged population. The birth rate however is very low. Yet the workforce is highly educated and skilled and generally English friendly. Some of these issues will be addressed in the consequent articles.
1 Since writing it appears that the North’s missile capability is advancing quite rapidly and it is generally assumed that it will have a weaponised nuclear capability sooner rather than later and this is giving cause for concern; the general population however remains apathetic to the threat.
2 This is currently playing out in quite a spectacular fashion with the President the subject of impeachment proceedings and the de facto head of Samsung on remand for corruption charges.
3 The British government has Korea high on its list for a FTA following Brexit.
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