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Preface

The Republic of South Korea (Daehan Minguk) is one of the most developed countries in

Asia. Most of its people reside in the metropolitan area surrounding its capital, the Seoul

Capital Area, which is the second largest capital area in the world with more than twenty-five

million residents live there (Index.go.kr, 2015).

As one of the Asian Tiger, South Korea were transform from a poor country into a high-

income advanced economy and the world’s largest economy in 1995. Nowadays, South

Korea becomes the world’s seventh largest importer and eight’s largest exporter in

international trade (Encyclopedia Britannica, 2015). Not only aautomobile and electronical

parts that are being exported by South Korea, but also the popukar culture being exported.

This transformation cannot be done without any unique resources or unique capabilities that

are owned by the country. During this recent year, South Korea is famous with its Korean

wave that invading some continents. South Korea, is also famous with the tourism industry

for these past years. Therefore, this paper aims to explain about the environment of the

country and its attractiveness, following by the analysis of its potential industry which is the

tourism and cultural industry. This paper will also discuss about the best entry modes to do

investment in the country, and the way to overcome the obstacles regarding the investment

activities.

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Table of Content

Preface 1

Chapter 1 : The Republic of South Korea

The History about South Korea 3

The Environment of South Korea 4

Geography 4

Demography 5

Economy 5

Socio Political 6

Chapter 2: The Hidden Treasure

The Tourism and Cultural Industry 7

Chapter 3: Investment Activities

The Climate 10

The Prospects 11

The Threat 12

The Entry Modes 12

Conclusion 14

Bibliography 15

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Chapter 1: The Republic of South Korea

The History about South Korea

The history of South Korea is divided into two eras. The first one is the era before the

separation, and the second one is after the separation. The Korean Empire (Gojosoen)

founded by Dangun in 2003 BC (Asianinfo.org). At this time, the people of Gojosoen were

referred as the “eastern bowmen” because; the meaning of Chosun itself is “The Land of The

Morning Calm” (Urban Dictionary, 2015). The kingdom was expanded until it reached the

north part of Korean Peninsula, and some parts of Manchuria. The Gojoseon Kingdom was

having too many conflicts with the Han Dynasty from China. This conflict disintegrated them

into three kingdoms, which are Goguryeo, Baekje, and Silla.

The kingdom was united in 936, by King Taejo of Goeryo. He announced the new name of

Korea as Joseon, and moved the capital city to Hanseong (Seoul). Around 1592-1598 Japan

arrived in Korea and invaded them, but the attempt was fail. After the First Sino-Japanese

War and Russo-Japanese War, Japan was able to occupied Korea from 1910 to 1945. After

Japan surrendered in World War 2, the southern part of the Korea is occupied by US and now

become the South Korea. The northern part of the peninsula was occupied by Soviet, and

now it is called as North Korea.

After the separation, there is a tension between North and South Korea up until now. This

tension is caused by the tension between Soviet and US who occupied them. The division

itself happened in 1948. In 1950 North Korea invaded the South Korea and the first Cold War

sparked. The conflict continued until 1953. During this war, around 1,2 million people died

and no peace treaty was ever signed between them (Lacina and Gleditsch, 2005). This tension

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is heated again during this recent year, as North Korea attacked South Korea’s ship and island

in 2010 and the missile and nuclear test done by the North.

The Environment of South Korea

Geographic

South Korea is located in the Eastern Asia, the southern part of the Korean Peninsula

bordering the Sea of Japan and the Yellow Sea. According to the geographic coordinates,

South Korea lies between latitudes 33 and 39 N, and longitudes 124 and 130 E. The total area

of the country is 99.720 square meters consist of 96.900 square meters of land and 2.800

square meters of waters. The length of its coast line is 2.413 kilometers long.

South Korea has around three thousand island. The Jeju Island is around 100 kilometers from

the southern coast of South Korea, and it is the biggest island in the country (Asianinfo.org,

2015). South Korea has twenty national parks and another popular nature places

(English.knps.or.kr, 2015).

The country can be divided into four regions. First is the eastern part consisting of high

mountain and narrow coastal plains. Second, is the western part which consists of broad

coastal plains, river basins, and rolling hills. Third, is the southwestern part of mountains and

valleys. Last, is the southeastern part dominated by the broad basin of Nakdong River

(Asianinfo.org, 2015).

South Korea has a humid climate, with heavier rainfall during summer compare to winter.

This is caused by the East Asian Mosoon. The natural resources of South Korea are coal,

tungsten, graphite, molybdenum lead, and hydropower potential (Cia.gov, 2015).

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The industrialization of South Korea caused some destruction of wetland. Therefore, South

Korea implements green-based economic strategy by utilizing around two percent of its

national GDP.

Demographic

The total population of South Korean is around 49 million, with 487 per square kilometers

population density that is more than 10 times of the global average. Around 1970s up to

1990s there is a rapid migration from the country side because of the economic development,

resulting in most of the society lives in urban area (Countrystudies.us, 2015).

South Korea has homogeneous ethnic groups, except 20.000 Chinese are living there. 47,3%

of the society is consist of people between 25 to 54 years old. Following by 14,1% are those

between 0 to 14 years old. 13,5% consist of those from 15 to 24 years old. 24,7% of the rest

is consist of the elderly which are those around 55 years old and over.

Most of the South Korean people speak Korean, but English is widely taught in junior and

high school. Around 31% of the society is Christian, 24,2% is Buddhist, and 0,9 are others.

But 43,3% of the society has no religion. (Cia.gov, 2015)

Economy

South Korea’s economy growth is one of the fastest in the world during these past four

decades. The GDP of South Korea is around $1.666 trillion in 2013. There are several

industries that contribute to the South Korea’s GDP.

There are six sectors that contribute to South Korea’s GDP. The first sector is the

shipbuilding sector. During 1970s up to 1980s South Korea became a leader on this

industries. In 2008 South Korea became the world’s dominant shipbuilder with 50,6% market

share global ship building. The second industry is the automobile industry. This industry has

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it major growth in 1980s. Around 846.000 units of cars were produced and 83,3% of them are

exported to US. The third industry is the mining. But this sector is not large, since most of the

minerals are located on the northern part of Korean Peninsula. The last two industries are

construction and tourism. Construction industry has become an important export industry for

South Korea. There are several big projects that are done by Korean big construction

companies for example are the Petronas Tower and Burj Khalifa project. The tourism

industry in South Korea started to grow in 2012 as an impact of the Korean Wave (Hallyu).

Based on the data in 2011, the Korean Wave (cultural industry) contributed around 7,549

billion Won to South Korea GDP (Oxford Economic, 2012). The Korean Wave also has a

direct impact of direct foreign investment through demand product and tourism industry

(koreatimes, 2015).

Socio Political

Regarding the socio political aspect, the legal system of South Korea is a mixed legal system

of European civil law, Anglo-American law, and Chinese classical thought (Confucianism).

The Neo-Confucianism in Korea became rigid by the mid of 1500s. The practice of the

concept were emphasizing on the hierarchy in human relation and self-control of individual

level. The western social and political values such as democracy, individualism, the equality

of the sexes, and national self-determination were introduced by late nineteenth-century. The

Confucian tradition itself actually contains anti-authoritarian values. The socio political of

South Korea is interacting dualities just like the yin-yang concept (Countrystudies.us, 2015).

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Chapter 2: The Hidden TreasureDuring these recent years, South Korea is one of the most visited country in the world. In

2012, there are 11,1 million foreign tourist visited South Korea (UNTWO, 2008). Most of

them are came from Japan, China, Taiwan , and Hong Kong. The increasing number in the

tourism industry was caused by the popularity of Korean popular culture that known as the

“Korean wave” (Hallyu) (World Travel and Tourism Council, 2013).

This popular culture started to be popular at the end of 1990s. The drivers of the spread of the

culture is the broadcast of Korean dramas accross Asia. This culture were becoming a global

phenomenon becuase of the Korean pop music videos (Time.com, 2010). The spread of this

Korean wave has reached Latin America, Middle East, South America, and Western world

(Foreign Policy, 2013).

The Tourism Industry

In 2013, the total contribution of the tourism industry reached 5,8%. This industry also

contributed to the employment sector of the country. The industry also support around 6,3%

of total employment. This is means that it directly supported 617.500 jobs in the country.

The Korean Wave has a direct positive impact to the foreign investment. The investmet in

tourism industries was around 8,062 billions Won, which is around 2,3% of the total

investment in the country. The investment were forecast to grow up to 4,2% in 2014 (World

Travel and Tourism Council, 2013).

The leisure travel spendig in South Korea generated around 79.7% of direct travel and

tourism GDP in 2013. Beside of the leisure activities business travel spending were place in

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to the number two contibutor. The business travel is ecpected to grow up to 5.9%. (World

Travel and Tourism Council, 2013)

South Korea has so many main attraction. First is the historical tourist attraction which

include the ancient capitals of Seoul, Gyeongju, and Buyeo. Beautiful natural landmarksnlike

peaks of the Baekdudaegan, caves of Danyang and Hwanseongul also become the main

attraction. Another attraction related to the Korean popular culture is the entertainment tour

of South Korea, where visitors can visit some of famous artist management office.

Compare to China, South Korea is a tourist friendly country because of its higher service

quality. Modern advanced information are also developed by South Korea in order to

strengthen their tourism competitiveness. Through the minisry of Culture and Tourism,

Ministry of Agriculture and Forestry, and Korea National Tourism Organization the

government of South Korea manage the planning, investment and administration activities. It

implies that the development of the tourism industry is centralized. Korean government have

a high influence on tourism resource planning, festival, and event. Another major competitive

advantage of South Korea tourism is, it is relatively cheaper compare to Japan (Caracciolo,

2014).

This high involvement is needed to keep the quality of the public goods that are offered to the

customer. Korean cultural tourism is internationally oriented. National and traditional

cultures are properly conserved and inherited in Korea. The reparation of historic heritage

construction is also undertaken (Jiqing, n.d.).

The Cultural Industry

South Korea’s cultural industry is the creator of the Korean Wave. Most of the apects from

Korean Wave are contributed by the cultural industry. The Korean Wave aspect itself

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contains of popular music (K-Pop), drama (K-drama), language, technology, animated

comics and films, and the last one is cuisine. The history of this industry itself started in

1990s. During 1994, Hollywood’s share in South Korea movie market had reached aroud

80%. On the other hand, the local film industry only own 15,9% of the market. In the same

year, the total revenues that Holywood earned from Jurassic Park were higher than the sale of

Hyundai automobile. This occation made Kim Young-Sam (the former preident of South

Korea) realize that culture is one of exportable commodity. By the end of 1995, the

foundation to spread out the Korean culture was establish.

The first breakthrough of the cultural industry in Korea started by the K-Pop singer BoA

Kwon that were succeed in Japan. In 2001, a boyband calle Shinhwa released their album and

succeed to spread their popularity ovevrseas specially China and Taiwan. In 2002, a Korean

drama called “Winter Sonata” became one of the most successful drama in Asia. The DVD

sets and the novel of it were sold, and earned more than 3.5 million US Dollar in Japan.

Following by that, another Korean drama that were also succeed in Asia such as, Full House,

Dae Jang Geum, and Boys Before Flower. The success of the K-drama were followed by the

K-Pop as TVSQ (DBSK), SS501, and Super Junior were debute.

The cultural industry of South Korea also experienced a hard competition with their

neighbour countries like China, Taiwan, and Japan. For example, Japan has its own popular

music called J-Pop. Both of these countries use the idol group concept. Taiwan also use the

same concept. One of the most remarkable boyband at that time was F4, Fahrenheit, and

S.H.E. Especially for F4, they also acted in a drama called “Meteor Garden”, and wa remake

by South Korea as Boy Before Flower. By late 2000s most of South Korea’s competitor in

the music industry cannot catch up with their developement, K-Pop become more global than

before.

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The cultural industry in South Korea contribute around 7.549 billions Won in 2011. The

Government of South Korea considers that the Korean Wave is one of a good way to increase

the total exports of the country. Based o the data of Kore’s Ministry of culture, sport, and

tourism,, the ecoonomic asset value of the Hallyu is around 83,2 billions US Dollar. In 2013,

the Export-Import Bank of Korea annouced their decision to provide loans and credit

guarantees around 917 millions US Dollar for entertainment and food firms to spread the

Korean Wave.

Chapter 3: Investment Activities

The Climate

South Korea has an amazing economic gain and able to transformed itself into such powerful

country. The export oriented of South Korea grew at a 3% rate in 2013 because of the fiscal

stimulus. This rate is expected to grow higher in upcoming years. Even though the economy

has been developed, South Korea is a favorable place for doing investment activities.

To create a pleasant climate for investment, the government of South Korea put a lot effort to

strengthen the market competitiveness. This is done by boosting the foreign investment

incentives and allowing non-Koreans to own land in South Korea. Various tax policies were

also implemented by the government in order to attract the investor. The government of

South Korea also established several agencies to support the foreign direct investment

activities. Tax benefits, cash grants, and financial assistance is also provided by the

government.

The rapid expanding market of South Korea was supported by the global FTA network. This

network including the Korea-USA FTA, Korea-China FTA, Korea-EU FTA, and so on.

Furthermore, the South Korea’s market is located near the fast growing market of China, and

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US advanced market. Nowadays, South Korea is the world ninth largest country in trading

volume with more than 200 trading partner. The South Korea’s domestic market is also one

of the top ten in the he purchasing power.

In order to reduce the obstacle in investing in South Korea’s market, another regulation made

by the South Korean government. It is called as the three-year “economic innovation”. There

are three plans regarding the economic innovation. The first one is to normalize practices.

This is done by reforming the public sector. The second plan is to boost creative and

innovative economy by supporting entrepreneurship and women role in the workforce.

The last plan is to boost the domestic economy by targeting five service sectors for

deregulation. These sectors are education, healthcare, finance, tourism, and lastly software.

This deregulation is one of South Korea primary economic goals. The government of South

Korea is also trying to improve the consistency of the government interpretation,

transparency, and timeliness in the application of FDI regulations. It can be said that the

attitude of government toward foreign direct investment is positive.

The Prospects

Based on UNWTO, the largest number of tourism industry in South Korea was in 2012. The

foreign visitor that visited South Korea at that time were around 1,04 billion which means

increase by 4% compare to the previous year. As stated by WEF, the tourism competitiveness

of South Korea were in 25th position among 140 countries, and 6th place in the scope of

pacific region out of 25 nations. Tourism industries can be divided into several sectors. These

categories are food, accommodations, property, lease, recreation, and entertainment.

As domestic market in South Korea were increased by 9% in 2010. The rapid growth of the

contents solution market is expected to result in the whole cultural contents market. This

global cultural contents industry earned around 1,6 trillion US Dollar.

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The Threat

There is always a positive and negative side in doing an activities. Like wise investing in

South Korea. South Korea has a geopolitical risk that is caused by the tension with the North

Korea. In 2013, North Korea tried to use a propaganda in order to damage the foreign direct

investment activities in South Korea. The war between South Korea and North Korea is no

longer a conventional war. But it is more to the international war. This tension had damage

the South Korea’s economy back in 1950s because of the Korea War.

The second issue that needs to be consider is chaebol, which is the conglomerate of South

Korea. This group is famous with its imperialistic management. The companies of these

group are hard to be assessed as, the nature of their business is sprawling. Sometimes, the

decision that they make is not for the best interest of the shareholders (agency conflict). This

group is also known as with their poor corporate governance. This may impact the visibility

of the company. In this case, it is hard to see the drivers of the company to grow. It is also

hard to assess the performance of the company, the way that the company being managed,

and whose interest is become the based of the decision.

The third issue is the reliance on exports. This particular issue is quite dangerous if the global

economy is suffering from a down turn, as happened in 2008.

The Foreign Direct Investment Activities

There are several entry modes that can be used in order to do investment in South Korea. For

example like merger and acquisition, joint venture, or strategic alliance. Before explaining

further about the types of entry modes to use, it is important to understand how the regulation

of doing investment in the certain industry. Regarding the foreign investment activities, the

tourism industry in South Korea is divided into hotel, theme parks, ski resorts, golf courses,

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and casino. This division is done to make the administrative regulation become easier.

Fortunately, there is no specific regulation regarding cultural industry.

Based on several success stories in tourism industry, the best entry mode to do investment in

South Korea is the joint venture. As joint venture is a partnership between two partners, it

will be favorable for investors to have partner that understand about the rules and regulation

of host country in order to minimize risk. In the case of South Korea, the government plays a

big role in the development of the industry. Partner is needed in order to help investor to

understand the situation of the South Korea’s industry. The successful of this entry mode is

proven in the case of Berjaya Jeju Resort and Incheon Bridge.

In the case of the cultural industry, it is more favorable to use the acquisition entry modes to

do the investment activities. South Korea has a regulation regarding tax incentives in the

cultural industry. There is a reduction of acquisition tax and registration policy in order to

boost the cultural industry in South Korea. During past few years, China is one of the biggest

investors in South Korea cultural industry.

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ConclusionAmong all of the industries in South Korea, tourism and cultural industries have the biggest

attractiveness during these recent years. This is caused by the Korean Wave (Korean Popular

Cultural) that was spread during 1990s until now. The Korean Wave makes the tourism

industry in South Korea became booming, as well as the cultural industry in the country. In

order to attract foreign investors, South Korea reformed some of the regulation in order to

create a favorable environment for investment. The most appropriate entry mode for doing

investment in tourism industry is through joint venture. But for cultural industry, acquisition

is more appropriate as there is tax incentive regarding acquisition.

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