South Korean Macro Environment
South Korea is located in the Eastern Asia. Characterized by temperate climate, The country is surrounded by mountains and coastal plains. South Korea also has such natural resources as coal, tungsten, lead. The country also has hydropower potential.
Although South Korea is endowed with arable land, it is apparent that water pollution that ensues from the discharge of sewage and industry will end up destroying the environment. This would consequently pose great danger to the survival of both plants and animals. Therefore, there exist certain environmental issues to be addressed.
South Korean population normally speaks Korean although English is also taught in high schools. About 26 percent of the population is Christian, 23 percent of people are Buddhists while 49 percent do not belong to any religious group. In total, South Korea has a population of 48.7 million.
The working class is about 72.9 percent of the total population while population aged 65 years and above is 11.4%. Even though the level of urban population stands at 83%, the low rate of urbanization is expected to remain at 0.6% until 2015.1
Reportedly, 99% percent of male above 15 years are able to read and write. It is estimated that 96% of women over 15 years can read and write as well. This has enabled the rate of unemployment among youths aged between 15 and 24 years to remain as low as 9.8%.2
The major cities, which are the cornerstones of South Korea’s strong economy, include Seoul, which is the capital city, Busan, Daegu, Incheon and Daejon. South Korea is characterized by high level of education among its population. Notably, South Korean GDP of about 50 years back was compared to that of developing countries in Africa.
South Korea’s present success is often explained by strong ties between the government and businesses. For instance, government constantly ensures businesses with steady credit in addition to providing restrictions on imports. In a number of cases, the government of South Korea encouraged the importation of both raw materials and technology. Conversely, it places restrictions to the importation of consumer goods.
It is through the government’s concerted efforts that emphasize on savings and investment at the expense of consumption that saw South Korea perform considerably well economically. Following the financial crisis that occurred between 1997 and 1998 (which plunged GDP down to 7% in 1998) South Korean government started reforming its policies including the allowance of large foreign investments in South Korea’s economy.3
South Korean GDP stood at $1.554 trillion in 2010. By the end of 2011 the rate of growth was estimated at 3.9%. The per capita was evaluated at $31,700 by the end of 2011. Generally, agriculture dominates 3% of the total economy while 39.4% is dominated by industrial sector. 57.6% of the total GDP is dominated by service sector.4
South Korea’s firms targets cheaper methods of production, access to new skills and financial support in addition to advanced technology. As far as South Korea’s outward FDI in Asia, it is estimated that South Korea has a net investment of 35% in Asia, which amounts to US$33 billion.
The second largest investment in the Asian region is that of the North America ($18 billion). The third is Europe which accounts for 11% of the total foreign investment in Asia which is approximately $11 billion.
Led by President Lee Myung, South Korea engages with other countries in issues pertaining to global policies. This is evident as Myung speaks for international collaboration between countries. Thus, he seeks to host Nuclear Security Summit, which will be held in March 2012.5 Nevertheless, South Korea frequently confronts with North Korea. For instance, certain tension was created after North Korea sunk South Korean warship in March 2010.
South Korean Factor Endowments
South Korea was ranked 12th in 2010 with GDP of 1.459 trillion. People refer to Hong Kong, Singapore, South Korea and Taiwan as the Asian Tigers.6 Rapid development of South Korea’s economy is due to the rapid growth in the industrial and manufacturing sectors. A major progress has been seen in the movement from labor intensive to capital-oriented economy.
However, South Korea lags behind in the agricultural sector. The sector employs only 7% of the total population. The movement towards industrialization and urbanization can explain reduction in the level of agricultural productivity. The main crop cultivated in South Korea is rice. It accounts for 90% of grain production. Other agricultural products produced in South Korea include barley and vegetables.
South Korean industrial sector accounts for about 40% of the total GDP. The largest industries in the South Korea include shipbuilding, telecommunication and automobile industry. In 1980s, South Korea was ranked sixth worldwide in the production of electronic products such as watches, PCs, microwave ovens, televisions in addition to semiconductors such as memory chips.
South Korea is ranked fifth after such countries as the U.S. and Germany in production of automobiles such as Renault and Hyundai. The country produces about 4.3 million automobiles every year.
Following the greatest number of the users of broadband in South Korea, the country has developed wide communication networks.7 The companies involved in shipbuilding include Samsung Heavy Industries and Hyundai Heavy Industries. Currently, South Korea invests much in the service industry considering that 68% of the workforce is employed in service sector.
Summary
South Korea is one of the four Asian Tigers that have developed fast during the last four decades. Admittedly, this is a promising market to enter. The government supports international investment. Therefore, it is possible to obtain favorable conditions for the development of business. However, there can be certain limitations as the government restricts import of certain goods.
Nonetheless, it is possible to focus on production in such profitable spheres as automobile industry, shipbuilding or telecommunications. It can be even more effective to concentrate on agricultural industry as this niche is underdeveloped. Therefore, there is not much competition in the sphere. Of course, the sphere of services is also quite a promising sector.
However, there are certain risks. In the first place, the country is still vulnerable to various economic constraints. Apart from economic difficulties, there is still tension between North and South Korea. Therefore, conflicts between the two countries can become a threat to political stability in South Korea, which in its turn will lead to financial instability.
Conclusion
South Korea remains a viable locality for various foreign investors. It was earlier recognized that South Korea’s government had placed strict measures with regard to foreign investment within the territory of South Korea. However, the government began encouraging foreign investments. Considering that South Korea is endowed with sophisticated technology, any company investing in South Korea would be assured of competitive technology.
However, the highest per capita would mean that South Korea labor is quite expensive. It is also apparent that South Korea is dominated by competitive firms that may give any foreign company tough competition. Nonetheless, there are certain sectors where competition is rather low. For instance, agricultural sector can be a promising sphere for investors.
This sector is underdeveloped at present. However, it is still important to take into account such factors as legislation, environment, workforce, etc. Finally, certain political constraints should be also considered as South Korea can have conflicts with North Korea in future. Though, these political issues can hardly drastically affect business, they should not be left out of attention.
References
- Helen Milner, “Globalization, Development, and International Institutions: Normative and Positive Perspectives,” Review Essay 3, no. 4 (2005), pp. 37-43.
- Charles Hill, International Business: Competing in the Global Marketplace (Boston: McGraw-Hill Irwin, 2011).
- Susan Douglas and Samuel Craig, “Global Portfolio Planning and Market Interconnectedness,” Journal of International Marketing 4 (1996), pp. 93-110.
- Randall Stone. “How to Reform the IMF,” Current History 109, no. 730 (2010), pp. 98-105.
- Martin Wolf, Why Globalization Works (Sydney: Yale University Press, 2004).
- Eugene Gholz and Daryl Press. “Protecting the ‘Prize’: Oil and the U.S. National Interest,” Security Studies 19, no. 3 (2010), pp. 24-45.
- Sebastian Rosato. “Europe’s Troubles: Power Politics and the State of the European Project,” International Security 35, n. 4 (2011), pp. 77-86.