This is the first in a series of short articles on doing business in Korea. The series will introduce important issues faced by foreign investors wishing to do business here including the foreign investment promotion laws, the types of corporate presence foreign investors can have, business models, visas and taxation.
Korea – A historical background
There always seems to be a dichotomy or contradiction, or both at play in Korea. It is some 73 years since it gained independence from Japan. Then, it was one discrete (and geographically quite large) country. Shortly after, it disintegrated into a particularly brutal and bloody civil war, indeed the battleground of a much broader international ideological war between capitalism and Communism.
It is notable that while held in abeyance for many decades, that war has not really been settled though the parameters have changed somewhat with China remaining a dictatorship but adopting a form of capitalism and Trump seemingly wanting to break up a world order which has survived for those 70 odd years. The real war is one for hegemony between the USA and China – the latter having the benefit of a stable leadership and which is able to plan for the long term. China only needs time.
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 sabre rattling on a fairly regular basis; the population in the south, unlike the world’s press, generally ignore it!
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 policy 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.
Recently, the current South Korean President Mun Jae In has reversed the hostile policy of the previous right wing president Park Geun Hye who also happened to be the daughter of a former president and who now languishes in jail for corruption. Mun is adamant to engage with the north and this culminated in the Trump – Kim summit earlier this year. It remains to be seen whether there will be any substantive develops.
In the meantime, it is clear that major actors in the region are ready to share in the spoils in what would be a huge economic boon if North Korea opened up. Mun met President Putin recently ostensibly to discuss a pipeline running from Russia through North Korea to the south. What an opportunity that would bring. The cooperation of China is also key in applying pressure to the north in terms of enforcing sanctions. It will also be integral if it opens up.
Historically, 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.
South Korea 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) came 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.
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.
In many ways however, South Korea has become a very robust democracy with an engaged electorate. This is in comparison to some older and more “tired” version in the West. The population demonstrated for several months against the previous president. This led to her resignation. The people will also no longer stand for political and economic corruption.
Korea has also for a decade or so tried to position itself as a regional hub. It has 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. There remain significant opportunities (and challenges) for foreign businesses wishing to do business in Korea.
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