South Korea: Country Attractiveness Report

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FACULTY OF BUSINESS AND ECONOMICS

KATHOLIEKE UNIVERSITEIT LEUVEN

D0M19B - International Business Strategy

SOUTH KOREA Shortened Country Attractiveness Report
Antoine Hirschland

Prof. Dr. Sleuwaegen Leo

– 2010 –

I.

Introduction

Thanks to the globalization, Asian economy is drawing more and more the attention of the rest of the world. Nevertheless, when we talk about economic growth in Asia, we think mostly about China, India or Japan whereas South Korean economy is staying quite unknown in Belgium. However, since the war in the Korean peninsula and the formation of the Democratic People's Republic of Korea (North Korea) and the Republic of Korea (South Korea) in 1948, South Korea has becoming a major economic power. Indeed, South Korea ranked fifteens (in terms of GDP) among the best world’s economies and fourth among Asian economies in 2009. To reach this, the Korean economy has experienced three development stages since the end of the Korean war: the economic autonomy increase from the ’50 to the ’60 in order to become less dependent on importations; the massive expansion of exportations during the ’70; the development of some industries form the ’70 until now to become one of the world leader in sectors like high technology, automotive, shipbuilding and steel industry. Furthermore, since the financial crisis of 1997, we can observe a decrease of the government intervention in the Korean economy and the development of a market-oriented economy. But South Korea is currently facing important difficulties like the lack of raw materials, the small size of the country, the competition with Chinese and Japanese industries and the political and military issues with North Korea. The purpose of this paper is to study the economic attractiveness of South Korea based on the “Diamond Model” framework of Porter (1998). We will also examine the main industries, the balance of trade and the political and commercial risks of investing in South Korea.

II.

Main industries

Even if the largest and most known Korean companies around the world are producing goods (LG, Hyundai, etc.), services represent the highest share of South Korean GDP with more than 55%. Almost all the rest of the GDP consist of manufacturing industry (around 40%), agriculture representing only 4% (mostly rice crops). It is also important to know that South Korea is the largest shipbuilder and the first producer of semi-conductor worldwide, and that the country has one of the largest automotive- and steel-industry.

III.

Balance of trade

South Korea has always been heavily dependent on international trade. In 2009, the country was the 8th largest exporter ($363 billion) and the 10th largest importer ($323 billion) worldwide and the trade surplus amounted to $40 billion. As we mention it in the introduction, South Korea is suffering heavily from the lack of raw materials. As a consequence, the largest share of the imports consists in mineral products -1-

(33%). In total, imports amounted to more than 323 billion in 2009 and the most of those imports came from China (23,9%) followed by the United States (10,4%) and Japan (6,0%). In 2009, Korean exports amounted to more than 43% the GDP, South Korea being the most dependent country on exports of the G-20 major economies. Electrical and electronic products represent the largest share of the exports (38%) followed by the sale of ships (14%). In recent years, chaebols (large industrial groups such as LG, Hyundai, Samsung, etc.) have adopted a new export strategy aimed principally to emerging economies (South-East Asia, Africa and South America) at the expense of developed countries. Indeed those markets are less saturated and Korean goods compete there better with North American and European products thanks to lower costs and the low purchasing power of those countries.

IV.

South Korean competitive advantage based on the Porter’s Diamond

The “Diamond Model” framework...
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