Multinational businessWeek 9 workshop

Multinational business in South Korea

South Korea

‘Republic of Korea’

Independent in 19482nd Highest Standard of living in Asia4th Largest economy in Asia1.198 trillion $ in 2013Member of UN, WTO, OECD (organization for economic co-operation

and development) and APEC (Asia Pacific economic co-operation)

“The Republic of Korea, an impoverished and devastated nation over a half century ago, now has one of the world’s most powerful economies

and is an important democracy with a large and increasingly capable armed force”

Donald Rumsfeld- 2005

Australia’s Channel Nine documentary “Ship Ahoy” calls Korea’s miraculous economic development “one of the biggest mysteries of the

modern world.”August 25, 2005

It was no mystery to the Koreans

There was one man who made this possiblePARK CHUNG HEE

The miracle worker of The Han River

History

• Japanese Colonial Rule (1910-1945)• Suffered humiliation and exploitation• Japanese used a militaristic ruling style• Newspapers in Japanese• Political and social organisations were banned as was public assembly• Religious services conducted under surveillance and many religious leaders

and scholars were arrested

Japanese Colonial Rule (1910-1945)

• Positives: Rapid industrial, economic, technological and cultural growth• But again harsh measure re-introduced from 1937-1945 to aid the

Japanese war effort• Korean men and women were drafted to aid the Japanese army• Introduction of Korean language in school was banned• Forced to accept Japanese surname

• Japanese colonial rule ended after the Japanese emperors acceptance of the “Postdam” ultimatum of the allies• Surrender or face utter destruction• Japan rejected which resulted in the bombing of Hiroshima and Nagasaki in

August 1945

History

• Pre War and Post WarIn 1948, an Independent Republic of Korea has establishedBetween 1945 and 1948 Korea has been divided into two parts and

called North Korea and South KoreaIt has also been decided by UN to administer the North Korea by Soviet

union and South Korea by USBut US and Soviet Nations did not agree for the UN’s unanimous

decision. In 1950 Korean war started for seeking complete authority over Korea.

Democratic People’s Republic of Korea Vs People’s Republic of Korea-1950-51

North Korea goes communist – Started unexpected attacks

South Korea goes right wing/democratic – Lost most of the battles due to untrained and unequipped military

Later UN supported ROK and damaged DROK with heavy loss

Korean War ended in 1951 but tensions remain across the borders

South Korea – 1952-61 (Rhee era)

Rhee forcefully ruled the government by constitutional amendmentsHe made 8 years term for him through constitutionRehabilitation started from 1953 with the financial assistance by UNTextile industry started in 1953 to emerge as the way for industrialization and

reconstructionLater textile industry became an export oriented industry which helped South

Korean Economy

South Korea-1961-1979(Park Era)

Actual economic growth started in 1961In 1965 General park Signed a contract with Japan for peace and trade

relationsPark’s model was export oriented industrializationHe created three institutions for the development process

The Economy planning BoardThe Ministry of Trade and IndustryThe Ministry of Finance

Park was against corruptionOne of the Important projects he took up and boosted industries in south

Korea – Seoul to Pusan Highway

South Korea – 1985-1992 (Roh Tae Woo) initiated reforms by liberalization of press laws, restoration of civil

rights and freedom of forming associationsStarted Democratic Elections – to end dictatorshipAllegedly arrested for taking bribe of more than $300 Million

Rule ended in 1992

South Korea-1961-1979(Park Era)

• Limited democracy• Restrict civil liberties and freedom of speech• Tried to follow Japanese Model of Bureaucracy• Troubled by domestic unrest among rebels and straining of

international relations with Japan and US• Situation worsened with the implementation of Martial Law• Limited democracy ended with the death of President Park

Though Park’s rule had obstructed democracy, it had also transformed the country into prosperous industrial nation

Before Park regime

Philippines GDP per capita $170Thailand’s GDP per capita $260

Republic of Korea’s GDP per capita

$79

Some facts

• 7 billion people on earth• 1 out of 5 people survive on less than 1 dollar a day• 1 out of 4 people don’t have access to water• 1 out of 8 people suffer from malnutrition

• Korea 1958, per capita income 67 dollar• Not rich in natural resources, devastated by wars

This country has no future. This country will not be restored even after a hundred years-

Douglas MacArthur

How can a rose blossom from a garbage dump?- Vengalil Menon/ Head of UN Special Delegation

Transformation of South Korea

• 60 years later Korea has become the 12th largest economy• Korea has gone through and amazingly rapid and successful

technological transformation

• How did Korea manage such a success from one of the poorest country?

Success behind Korea’s economic success• However, during the busy effort of restoration, it was education that

became the nations highest priority• Although struggling from day to day Korean parent did not ignore the

education of their children• Compulsory primary and middle education• Produced highly trained workforce which became impetus for

successful Korea

Success behind Korea’s economic success• Park Era:• Korea was forced to rely on foreign aid• Did not last long after basic restoration was over• So economy development stopped for a while where their development was

dependent 90% on foreign aid• This is when Military regime takes power in 1961• They made economic development the top priority• Founded the economic planning board- responsible for planning, allocating

the budget and for attracting foreign capital

Success behind Korea’s economic success• 1965- additional aid ($600m) from Japan- public uproar• 1965- got an opportunity to build relationship with USA by sending troop to

Vietnam war• Gained economic support in return for 320,000 troop to Vietnam war• Also gained modern weapon• Soldier paid by American government• Remittance for South Korea• Began movement called New village programme• Used the government fund to clear all the debt of farmers and fisherman then

began the modernization of country side- raised the living standard and productivity

Success behind Korea’s economic success• Developed a 5 year plan- blue print for economic development also

know as ‘Miracle of the Han river’• First 5 year economic plan was put into action in 1962• Problem was acquisition of fund• US acted adversely• Korea with endless effort receive funding from West Germany in

return for the workforce of miners and nurses• Huge remittance for Korea from these people which the government

used effectively for economic development

Success behind Korea’s economic success• But still remittance was not enough• Light industries such as wig and needle developed rapidly• Government began to invest in other industries such as steel, coal,

chemical, machinery and ship building• Others thought that steel industry was not feasible in Korea• Huge investment needed• In spite of all Korea begun to produce steel in 1973• Develop Korean economy with manufacturing in the heart

Success behind Korea’s economic success• Even though they started making steel 60 years later than other

advanced countries, they became the fourth largest producer of the steel by 2009

• This paved the way for other steel related industries such as ship building, automobile, fine machinery, construction and electronics

In order to rid itself of it poverty, Africa must adopt Korea’s New Community Movement as its role model.-

Barack Obama, President of US

Success behind Korea’s economic success• When new community movement (Saemaul movement) begun in

1970, Korea was virtually bankrupt• But the support they used to provide was used effectively by Korean

to improve their living standards• 33,267 villages in Korea received free cement• For the next 2 years Only the village that showed promise received

the free cement and steel• Support the community that have will to stand on their own• People also gained confidence and realised that anything is possible

Success behind Korea’s economic success• New community movement paved ways for various industry• This showed that poverty can’t be overcome alone by foreign aid• This grass root effort along with couple of global economic boom

helped to fuel the amazing growth of 9.6% during early 1970’s

Success behind Korea’s economic success• Crisis and opportunity• But crisis emerged from unexpected source• Outbreak of the Yom Kippur War on October 1973• Price of raw material skyrocketing• No source of raw material

• This crisis was used by Korean government as an opportunity

Success behind Korea’s economic success

• They used the construction boom in middle east• Dispatched worker there and building 10 billion dollar worth of

buildings a year• Second oil shock occurred• During the both oil shock, other countries decreased investment, but

Korea didn’t• During the second oil shock Korea restructured their economy

Success behind Korea’s economic success• The phenomena of the three lows:

• US dollar, low oil prices and low interest rates helped the Korean economy to flourish in 1980s

• Member of WTO in 1995 and member of OECD in 1966• Asian crisis did affect South Korea in 1997• Even the Chaebols were in the verge of collapse• In November 21, 1997, Korea requested relief from IMF• Company started downsizing• But again this financial crisis provided opportunity for economic reform

Success behind Korea’s economic success• Insolvent financial institution were shut down or merged while

corporate businesses underwent extensive restructuring• Management system were also changed with principle based on

competition and performance• It did not wait for rest of the world to happen• Foreign reserves: 3.9 billon dollar in 1997 surged to 99 billion dollar in

2001, 5th highest in the world• Repayment to IMF 3 years ahead of deadline

Success behind Korea’s economic success• When the war broke out in middle east, other countries moved out

with panic, but Korean didn’t.• Maintaining the marketing networks• Due to financial crisis, value of currency plummeted and value of gold

sky rocketed• National gold campaign

• Automobile industry• Semiconductor industry- world leader • Revolution on Information technology• Cultural revolution- Korean wave

Success behind Korea’s economic success• Investment in education• Spirit of challenge• Confidence on success• Continuous innovation• Successful development thanks to the sacrifice of its people

• Along with this success has bought some problems• Disparity between rich and poor• Conflict between city and rural area and • Pollution

Success behind Korea’s economic success

From Aid recipient to Aid donor

DSM-Decision Support Model

• Concentrated version of Japanese Economic model• Strong, centralized (Military) government giving direction

Government Strategy to Boost Economy

“OIG”• Outward facing• Industrialisation

• Government Direction

Outward facing

• Philosophy:Exports FirstNation building Through Exports

Import Production Export

Industrialisation

• 1960’s – Textiles, Cloths, Toys etc.

• 1970’s – Steel, Electrical Goods, Electronics etc.

• 1980’s to till date - Cars, Computer Hardware etc.

Government Direction

Banks: Two-tier credit policyTax: Two-tier tax policyTrade: Exchange rate controlsEducation: Human Capital InvestmentLabour: Trade Union ControlsPlanning: Ministry of Commerce and Industry and Ministry of

Economic Planning Board

‘Chaebols’

• ‘Large Firm Conglomerates’• Samsung, Hyundai, Daewoo, LGS, SK etc…• Close Relations between Government

• Same as Keiretsus but,• Family owned and Controlled• No Banks• Suppliers are subsidiaries• No company unions• Heavy borrowers