Introduction
The increased competition in domestic markets constitutes one of the reasons that make an organization expand its business to include international markets. However, before such an initiative is accomplished, it is important to understand the dynamics of international business, especially in the nation that a firm wants to establish new outlets through strategies such as franchises or other forms of strategic partnerships. One way of accomplishing this agenda is through the analysis of the foreign business environment. In fact, the need for such analysis constitutes one of the principal purposes for my field trip to South Korea. Guided by this concern, the purpose of this paper is to report on my observations regarding Korea and its business environment, present an overview of internationalization of Korean businesses, lessons learned from the Korean trip in the international business context, and relating the lessons to the concepts of international business studied in the course.
Observations Regarding Korea and its Business Environment
Samil PwC: Doing Business and Investing in Korea rates South Korea in the 13th positions in terms of the leading global economies (15). The organization argues that this success is attributable to the close interactions between the government and business to provide the necessary business drive, including direct credits. Indeed, from field observations, the government’s support for business is indispensable. Many business people attribute their success to the government’s promotion of the importation of raw materials coupled with the necessary technology for their conversion into finished products that can be traded both locally and in the international markets. The Korean business accomplishes this mission at the expense of various consumer goods. Through government encouragement of investments compared to consumption, Korea has grown into a big production economy.
My visit to various businesses in Korea evidenced observable business boom. This finding raised my interest concerning why Korea is such an attractable business destination. One quick response that I got was that Korea has the appropriate economic reforms, which encourage foreign investments. Indeed, Samil PwC: Doing Business and Investing in Korea supports this position by revealing how Korea embarked on policies that encouraged a high level of business openness to foreign investors coupled with importations following the 2008-2009 global financial crisis (15). For example, as shown in the graph below, in 2004 to 2007, Korean economic growth had moderated to between 4% and 7%.
However, the organization also observes how South Korean economic growth slowed during the global financial crisis to average at 2.3%. The worst drop was experienced in 2009 when it stood at 0.3% (“Samil PwC: Doing Business and Investing in Korea” 16).
While the above figures indicate that Korea was also affected by the recent global financial crisis, the nation recovered much rapidly compared to other nations, including the US. In support of this assertion, Samil PwC: Doing Business and Investing in Korea asserts, “Korea income per capita rose from USD 17,041 in 2009 and USD 20,562 in 2010 to USD 22, 429,489 in 2011” (16). The graph below shows the country’s income per capita during the 2006-2016 period.
The nation also emerged the seventh position in terms of exports in 2011. This position was an improvement by 2 points since it stood at the ninth position in 2010.
The advent of globalization makes many companies that were previously operating in the local markets seek business establishments in foreign markets. Globalization refers to the process of integrating people coupled with governments and organizations around the globe. One of the major limitations that companies that seek to exploit foreign markets may face is the challenge of linking franchises established in foreign nations to the organizational culture and policies. However, from my observations, this challenge is limited in the Korean business environment. The government supports business models adopted by foreign investors. This support is assured subject to the alignment of such models with legal frameworks for doing business in Korea.
In the past years, business opportunities in South Korea were only abundantly available in labor-intensive areas such as the processing or manufacturing sectors. These opportunities were easily available due to the need to produce products for exports. However, from my observations, entrepreneurs can gain high returns using the highly evolved and skilled human resources that are readily available in Korea. Such resources are incredibly useful in high-end technology businesses. The middle-income earners’ population in Korea is also highly affluent. This situation is conducive for businesses that deal with opulent commodities.
Brief Overview of the Internationalization of Korean Businesses
Globalization is an important aspect that influences the internationalization of Korean businesses. The phenomenon has resulted in easing communication, partly due to the recent immense development in telephony and internet technologies (Anderson 631). Hence, the challenges of expanding markets that were experienced by organizations that sought to take their businesses global have been incredibly eased. Consequently, the term international firm has become a common terminology in international business debates. Kotler described an international business organization as one that conducts business in more than one nation (34). Hence, the internationalization of Korean businesses implies a situation that involves the establishment of commercial centers in other nations.
Akin to the phenomena of globalization, many countries have experienced high levels of internationalization of their locally established firms in the quest to secure global market shares (Anderson 631). Korean multinational organizations have not been left out. However, small and medium-sized businesses in Korea are yet to acquire full internationalization momentum even with the increased availability of a means of communication and penetration of internet to facilitate such a process. Indeed, Lee asserts that the special assistance given by the Korean government to SMEs seems not to deliver the anticipated outcomes (14).
This drawback is a major one considering that such businesses account for about 99% of all commercial centers that employ about 85% of the total labor force in Korea (Anderson 632). Hence, from my observation, although big companies in Korea adopt internalization as a business growth strategy, SMEs can incredibly contribute to lowering unemployment rate if they consider exploiting the internationalization strategy to grow their business portfolio. Asian Development Bank makes such an appeal by calling upon the SMEs in South Korea to expand their operations through the internationalization strategy (141).
From the technological sophistication, communication, and general infrastructural developments, businesses are capacitated to supply and/or distribute goods and services virtually in every geographical location around the globe (41). Korean multinational organizations have reaped from the adoption of technologies in business. Korea is known to remain on edge with high-end technologies. The MNCs tap from this potential in helping them to penetrate international markets competitively. Nevertheless, venturing into international markets is a risky endeavor.
This argument arises because firms are required to be strategically prepared and organized to overcome cultural impediments, differences in currency, language barriers, and the regulatory or legal environments that may be inconsistent with the organizational policies (Cooper and Schindler 12). However, I observed that firms that have substantial capital bases among other resources can easily sail through these impediments without having to rely on external aid (Suh, Mueun, and Sumit 11). Large corporations in Korea have internal reserves. They also enjoy easy accessibility of financial aid from the government to enhance their business expansion efforts in the international markets.
Lessons Learned from Korean Trip in the International Business Context
The international business context presents challenges for the establishment of businesses. Such challenges are apparent where a nation may develop policies seeking to protect local establishments from foreign business competition. However, from my trip to South Korea, I learned that the government of South Korea has ensured the ease of foreign direct investments. In this context, Global Success Club: South Korean Business Environment reveals that South Korea has deregulated, put in place financial coupled with financing incentives, and/or improved its living environment (par.1). Through the trip, it became evident that South Korean government has ensured that all levels of government make the nation an attractive destination for both local and foreign investments. From the case of South Korea, I learned that tax support is one of the most important ways of easing difficulties encountered while joining a foreign market. The government reduces or exempts businesses from taxes levied because of the introduction of new technologies, custom duties paid on capital goods, corporate tax, and even business incomes.
The government offers cash grants to investors from foreign nations to guarantee more investments. In this process, the government considers “whether the relevant foreign investment accompanies high technology, the effect of technology transfer, and the size of job creation” (“Global Success Club: South Korean Business Environment” par.2). It considers the overlaps of the proposed investment with domestic investments to secure a balance between the two.
This concern underlines an important lesson that a nation should consider the effects of internationalization on domestic investments, particularly on aspects such as technology transfer, which can help in boosting domestic investments. Directly congruent with this argument, Hough and Neuland maintain that sales expansion, the acquisition of new resources, the need to minimize risks, the depreciation of currencies, and local market saturation account for the internationalization of business (39). Therefore, the internationalization of business may incredibly aid in facilitating business to achieve the economies of scale. Consistent with this concern, during the business trip, I learned that Korea emphasizes production for export in the effort to ensure that its products have a global feel.
Relating the Lessons Learned to the Concepts Studied in the Course
The course identified a myriad of reasons explaining why organizations may consider diversifying their operations to include global markets. Indeed, scholarly works studied in the course contend that the emergence of demand potentials in foreign markets is one of the common reasons for considering business internationalization strategy. Korea’s initiatives such as policies that seek to create transparency and easy foreign direct investment processes are important in reducing the difficulties experienced by organizations that wish to establish businesses in Korea. This lesson relates to the concepts learned in the course. Based on class discussions, joining new markets in foreign countries requires organizations to exercise caution. While organizations can develop strategies to deal with entry challenges that relate to their internal structure, dealing with macro-environmental factors in a foreign nation is incredibly problematic. This observation underlines the importance of developing an appropriate entry strategy that ensures that an organization uses the existing knowledge and experience to operate in foreign nations.
Entry strategies for Korean market include franchising, licensing, and full ownership among others. Holt and Quelch assert, “All businesses operate within an environment, which directly or indirectly affects the way in which they function” (69). This claim implies that the successful colonization of new markets in Korea would call businesses to consider the impacts of various macro-environments. The government of Korea has identified this concern when developing policies to address the challenges encountered by foreign organizations that seek to establish business in the nation. In fact, the government of Korea provides cash grants to foreign investors to fund activities such as the construction of new factories. Such policies have also made Korea the fifth best nation in terms of ease of doing business for both local and international firms.
Conclusion
Expansion into foreign markets encompasses one of the strategies pursued by businesses to increase their economies of scale. The strategy has become more attractive in the globalization era. The investment destination nation may prohibit such initiatives through policy frameworks that make it hard for foreign firms to do business. However, as evidenced by my experience on a business trip to South Korea, this claim does not always hold. The government of South Korea has ensured transparency while at the same time providing the necessary incentive that encourages different foreign investments in key areas such as high technology business ends, manufacturing, processing, and other industries. Korea is one of the leading nations in terms of easiness of doing business.
Works Cited
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