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The Global Surge in Currency Reserves
Sunday, October 31, 2010
Wednesday, October 27, 2010
Gangnam, South Korea
http://www.koreaherald.com/national/Detail.jsp?newsMLId=20101026000866
Gangnam is an administerial district in southern Seoul but actually involves a much more complex social connotation here in Korea.Gangnam, as opposed to Gangbuk, or north of the Han River, usually refers to three relatively affluent districts: Gangnam-gu, Seocho-gu and Songpa-gu.
The area may mostly be represented by two major keywords: wealth (especially in the real estate section) and education.
The northern districts in Seoul, such as Jongno, had traditionally been the key area of the 600-year-old capital city. The now-prestigious Gangnam land was largely neglected as an agricultural outskirt area until the mid-1960s.
However, since the Busan-Seoul highway and the Gangnam Boulevard were built in the 1960s, the former suburban wasteland became an icon of real estate speculation.
Also, Tehran Boulevard, the major eight-lane road linking Seocho-dong and Samsung-dong, rose as a symbol of business success in the 1980s.
As of the end of 2009, the average market price of Gangnam real estate has multiplied by 500,000 times over the past 50 years, according to Seoul City data.
Its ever-soaring price flinched last year, for the first time since the financial crisis back of 1997, according to Seoul City statistics.
The sudden influx of money also gave birth to the first generation of real estate goldminers, who later bequeathed their wealth to their children, creating a new upper class.
Gangnam’s social connotation as the city’s prestigious core was further reinforced in 2000 when the multipurpose residential building Tower Palace was built in Dogok-dong, Gangnam-gu.
“The initial sense of prestige may have diminished over the years but its residents still usually specify their address instead of describing it as just Gangnam,” said a real estate agent in the area.
“Though its social significance has diminished over the years, Tower Palace still stands as an icon of the so-called Gangnam wealth, often referred to as the Korean Manhattan.”
These economic connotations also led to political influence in the corresponding districts.
In the June local elections, the re-elected Seoul Mayor Oh Se-hoon, who fought a hard battle against his liberal rival Han Myeong-sook, caught up as votes from the Gangnam districts were disclosed late in the night.
His opponents criticized Oh as the “Gangnam mayor,” alluding to his siding with the affluent citizens of the city.
The people of Gangnam are also renowned for their education fever.
Among the 713 Seoul high school students who made it to Seoul National University this year, 292 or 41 percent were from the three Gangnam districts.
Also, the top school districts are there, together with the busiest hagwon streets.
Mothers quite often give up on their career despite their high level of education in order to become a full-time parent, dedicating themselves to the academic management of their children.
Such mothers have been nicknamed “Gangnam ajummas,” largely associated with real estate speculation and overeagerness for their children’s education.
Despite the government’s efforts to curb private education, the education rush persists, much of it taking place at great cost.
With the Gangnam area, especially Gangnam-gu, in spotlight in connection with the G20 summit, many once again reflect on the social and economic significance of “Gangnam” in Korean society.
“Gangnam is very often censured for its exclusive wealth and the resulting prejudices but now hopes to acquire a new reputation as a hot spot representing Seoul,” said an official of the Gangnam District Office. ◦
Saturday, October 02, 2010
U.S. car industry seeking inroads in South Korea
By Howard Schneider
Washington Post Staff Writer
Saturday, October 2, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/01/AR2010100107191.html
In the best of all worlds, a U.S. free-trade agreement with South Korea would fling open the doors of that country's million-vehicle-a-year auto market to U.S. models like the Ford Focus or Fiesta, the type of fuel-efficient small cars that Koreans prefer and are central to Ford's corporate strategy.
But in practice, there's no guarantee those extra vehicles would be made at U.S. plants by U.S. workers, rather than at Ford facilities in places such as Chennai, India, or Chongqing, China, where the automaker's footprint is growing.
Debate over the proposed trade treaty, which could be resolved this fall, has boiled down to a battle over automobiles - an industry that South Korea has nurtured into an export powerhouse and the United States is trying to rebuild after a traumatic restructuring and government bailouts. That fight is being waged with graphs and sales statistics - the skimpy penetration of imports into South Korea offered by U.S. companies as proof the country is protectionist, data showing a steady rise in sales of European luxury autos offered by South Korea as proof that it is not.
But there is a deeper reality that is rarely captured in the data, and it could blunt the impact on jobs of any deal the Obama administration is able to strike: the globalized nature of auto production.
Not only has Ford, like other major auto companies, stationed its factories strategically around the world, but the largest U.S. car company, General Motors, has bowed out of the South Korea-U.S. trade debate altogether because it already has access to the market through its ownership of the South Korean automaker Daewoo. GM makes and sells more than 100,000 cars a year through Daewoo and exports hundreds of thousands more to Europe and elsewhere.
"Historically we have built where we sold," said Greg Martin, a GM spokesman. "We sell in Korea and we build in Korea."
Tens of thousands of Chevrolet-branded Aveos come back to the United States each year as imports. It's an odd footnote for GM, considering its largest stockholder - the federal government - is working to temper the country's mammoth trade deficit. GM says its production of Aveos will shift back to the United States soon.
"The net calculation of a Ford or a GM - how they react or expand or alter their production network - it is kind of hard to know," said Matthew J. Slaughter, a professor at the Tuck School of Business at Dartmouth University and a member of President George W. Bush's Council of Economic Advisers. "Free-trade agreements both create and destroy jobs. Exactly in which countries and in which industries is really hard to predict."
Deal made, not ratified
The South Korea agreement was negotiated by Bush but never ratified by Congress. President Obama, who has made its enactment a priority, wants to finalize possible changes with the South Korean government when he visits there in November and then seek congressional approval.
There are issues beyond automobiles on the table, including continued restrictions on U.S. beef exports to South Korea and some trade enforcement matters raised by labor and other groups leery of the trade pacts signed by the United States in the past two decades.
But the debate over cars is considered the key dispute. The agreement would have to clear the House Ways and Means Committee, and its chairman, Rep. Sander M. Levin (D-Mich.), whose district includes northern suburbs of Detroit, insists there be more tangible benefits for U.S. automakers.
South Korea sends more than 400,000 vehicles, mostly Hyundais and Kias, to the United States each year and makes about 200,000 others at U.S. plants. By contrast, the United States exported 5,878 vehicles to South Korea in 2009, according to data from the U.S. Commerce Department.
The U.S. auto market, of course, is roughly 10 times as large as South Korea's. But advocates for the U.S. auto industry say the figures are still disproportionate, and they argue that an array of South Korean policies, including an undervalued currency, give Korean automakers an unfair advantage.
With just seven weeks until Obama is to travel to South Korea, the top trade negotiators from the two countries have yet to meet, and people involved in the discussion say the United States still has not decided what changes it will request of the South Koreans.
Some in the broader business community worry the talks are bogging down over a single industry, putting what they feel are clear gains for the U.S. economy at risk. South Korea is dropping a long list of tariffs under the agreement, including stiff taxes on U.S. agricultural goods. Major U.S. financial, insurance and other firms say the access they expect to gain in South Korea's near-trillion-dollar economy will be a boon.
For the auto industry, the agreement would mean an elimination of tariffs. South Korea has an 8 percent tax on incoming automobiles, compared with the 2.5 percent levy imposed by the United States. The United States would also give up a 25 percent tax on pickup trucks over 10 years - a potential incentive for South Korean automakers to enter a market where Ford in particular has been successful.
Exports vs. imports
Ford officials say the stakes go beyond tariffs. The company says the issue is whether South Korea will meaningfully drop the types of preferential taxes, regulations and other market biases that have created what Ford lobbyist Stephen Biegun calls an "upside down" auto industry. Upward of 70 percent of the cars produced in South Korea are exported, far above the industry norm, he said. Meanwhile, imports account for less than 10 percent of local sales, compared with an average of 40 percent in other developed countries.
While Biegun acknowledged that some of South Korea's more overt forms of market bias have been dropped - owners of imported cars, for example, previously had to declare them on income tax returns, a sign of affluence more likely to trigger an audit - he said the country's meager level of imports proves the market is not truly open.
"We want an opportunity to sell more, and we want it front-loaded," Biegun said. Any benefit they get, we want it leveraged for them to open markets."
But understanding how liberalization by South Korea - and other U.S. trade partners - might translate into American jobs is difficult in an industry where brand names have little connection to country of origin, supply chains crisscross borders and joint international ventures are used to advance research and development.
Just as Chevrolet's Aveo is shipped to the United States from South Korea, Ford's Transit Connect cargo van, for instance, is imported into the United States from Istanbul. (The van is outfitted with passenger seats to skirt the 25 percent tax on trucks that has benefited U.S. truckmakers since the 1960s, and the seats are stripped once the vehicles enter the United States, according to a Wall Street Journal report.)
The North American Free Trade Agreement, meanwhile, has spread automaker supply chains and production throughout the United States, Canada and Mexico, making it difficult to tell how much U.S. content - and how many U.S. jobs - are represented in any given vehicle.
The few thousand cars Ford sells in South Korea - higher-end vehicles such as Tauruses, Mustangs and Explorers - are all manufactured at U.S. plants. In the future, Biegun said, Ford hopes to sell many more of its smaller, mass-market vehicles in South Korea.
It might make sense for Ford to produce the cars next door at the company's facility in Chongqing. But he said that plant is already at capacity.
"I don't know where we would source vehicles over time if it were truly open," he said. ◦
Sunday, September 26, 2010
Seoul Ascending (NY Times)
http://www.nytimes.com/2010/09/26/t-magazine/26well-korea-t.html
September 23, 2010
I’m standing with Cho Min-suk, one of Seoul’s foremost architects, atop one of his own skyscrapers, a luxury apartment complex called Boutique Monaco. And it’s only perhaps from here, on high, that one can grasp what is meant by “the Miracle on the Han,” as Seoul, South Korea, is sometimes known. A hundred years ago, the city had fewer than a million people. Today Seoul boasts 23 million, making it by some counts the second-largest metropolitan area in the world.
Cho, 43, whose firm, Mass Studies, focuses primarily on the problem of designing for overcrowded spaces, seems both intellectually thrilled and sociologically concerned by the rapidity of the city’s rise. Pointing to the south side of the Han River, now home to millions of people, he says, “Forty years ago, there was nothing there. Just rice paddies and villages. When I was born, I was practically a third world child. There was a sandy beach on the Han where we would swim. Seoul was flooded during monsoon season, with pigs floating around.”
If “the Miracle on the Han” is a tribute to the rise of South Korea (whose gross domestic product is now the 15th largest in the world), it is also a study in urban development gone awry. To survey Seoul from above, from the wan, smoggy sky to the grim, phalanx-like clusters of apartment towers down to the malls, streets and sidewalks, is to countenance a world of endless grays without respite. The creation of so much housing and functional infrastructure is no doubt a stunning technological accomplishment. But it also can feel suffocating, devoid of green, of spiritual egress, of uplift or creative expression of any sort. As Cho remarks, “It’s the complete failure of urbanism.”
In what might be described as a hundred Bilbaos a-blooming, Seoul’s government has made an inspired decision to commission a retooling of Seoul’s heart, soul and mind, to tear up large swaths of the city and replace them with the best in cutting-edge global design. Like a makeover patient in a salon chair, covered in eye patches, bits of tin foil and skin wraps, the city is a patchwork of mega-construction sites like Daniel Libeskind’s Yongsan International Business District, a 32-million-square-foot multiuse complex that will yield an entire district; a brand-new high-tech, eco-friendly City Hall; and the 30-year Hangang Renaissance Project, whose parks, cultural areas and artificial islands along the Han River banks will create public access to open space and nature where literally none existed. The flagship of Seoul’s design investment is Zaha Hadid’s Dongdaemun Design Plaza, a cluster of biomorphic forms surrounding the old city wall, featuring a museum, library and retail space as well as 323,000 square feet of green space.
It’s too early to say whether the transformation of Seoul, the world’s biggest producer of flat-screen televisions, hand-held devices and cellphones, will produce a sleek, self-possessed and highly livable 21st-century headquarters or an impressive but inorganic white elephant of top-down planning, à la Brasilia — or, as is more likely, something in between. So far, Seoul’s realignment has been impressive enough to garner the prestigious appellation of World Design Capital 2010, a designation conferred by the International Council of Societies of Industrial Design to the city that best exemplifies “design-led development.” The city’s pride in the award is made clear by the number of billboards and scaffoldings bearing the words “World Design Capital.”
While Korea’s future may look bright and shiny, the country has one of the world’s more wretched histories on file: 1,700 years of intense slavery, then repeated brutalizations, first by China; later, during the Japanese conquest from 1910 to the end of World War II; and most recently during the Korean War, when the peninsula served as a scrimmage field for Russian-American aggressions. The country’s entire history, for reasons ranging from necessity, pride, dictatorial government fiat and perhaps habit, seems an endless process of hasty repair and urgent self-transformation.
But statistics tell a story of a populace whose energies have been harvested at an unsustainable rate. Koreans work something like 2,300 hours per year — more than citizens of any other advanced nation. The country also has the highest suicide rate on the planet. Combine that with the tendency for newly wealthy citizens to demand their freedom and individual rights, and what does it add up to?
For me, it felt like the whole place was an adolescent about to turn 18. If the country was the homely nerd from high school, it seems about to become a supermodel. It wasn’t because the powers that be were imposing a sleek, high-tech aesthetic upon the citizens. It seemed more realistic that the culture and its people are just too warm, interesting and weird to keep themselves bottled up any longer.
One afternoon, I met up with the sculptor and artist Chun Sung-Myung and his friend Jae-ryung, an assistant film director. Chun had offered to give me a tour of the older part of town, north of the Han River. Here, the neighborhoods of Insa-dong and Samcheong-dong remain fetching examples of unreconstructed Seoul: pedestrian-oriented, quaint and as redolent of history as anything gets in the city. The larger streets are packed with shops and galleries, while the alleyways are sprinkled with tiny restaurants and houses with pint-size doorways.
Chun told me that long ago, the royal family used to pass frequently through these neighborhoods on their way to the palace. Locals, weary of dropping their loads and hugging the ground to bow before their betters, as dictated by custom, devised the diminutive alleyways so that the royal horses and carriages could no longer pass and disrupt them. The story seems to me to be an apt description of the relationship between Korea’s rulers and its subjects to this day.
“We don’t have a voice like you have in America,” Chun said, sitting down at Minto Communitas, a 24-hour coffee shop with blond wood tables and a Euro-leaning vibe. “We have a lot of people in such a small place, and we have to live together. If the factory is next door, making noise or pollution, you just have to learn to live with it.”
Since World War II, under the military dictatorship through 1980 and then through a democratically elected government, Korea’s politicians have exercised power through the chaebol system, a sort of benevolent oligarchy of corporate cronies — Samsung, Hyundai, Kia, Lotte, LG — who control the lion’s share of economic activity. Samsung, for example, with shipyards, cellphone businesses, electronic businesses, real estate and apartment towers, controls an estimated 20 percent of South Korea’s economic life. If the system lacks the level of transparency and democracy that might be demanded by Western polities, there can be no doubt that it has delivered a level of growth, security, prosperity and social harmony unknown to most of the world.
The price of such carefully guided progress has, for the most part, been the submission of individuality and creativity. “We’re like robots,” said Chun, whose recent artwork runs to sculptures based on his own childlike image, stuck in a silent, mythic process of endless self-mutilation and meditative self-observation. Koreans work, work some more and do not question their government. Conflict — within couples, within families, within society — is uncool. And yet signs are everywhere of a creativity and vibrancy bursting out between the seams of society. In the Minto coffee shop, one of thousands across a city that 15 years ago had almost none, young people gathered to socialize.
While their elders, raised in a third world country, dress in somewhat grim proletarian styles (derby caps, down vests), the younger people in this cafe were dressed in Uggs or Converse high-tops, skintight jeans and baseball caps. They work at Lotte World, the largest indoor amusement park, or at Spaghettia, an Italian restaurant chain: jobs that are more about having fun than rebuilding a country from the brink of starvation, as it was after the war with North Korea.
It’s not that life is less serious for the new generation of Koreans; the life trajectory of the older generation is no longer possible. Land prices have risen so fast that it’s now impossible for many young people in Seoul to move out from their parents’ homes to get married, start a family, live the middle-class dream.
After coffee, we spent some time looking for a road that no longer exists, and I heard Chun and Jae-ryung express a sentiment I would hear continually throughout my visit: “Oh, that building got torn down.” “Oh, I guess that building isn’t here anymore.” For dinner, they took me to Yang Ban Daek Restaurant, a down-home place in a private house for 26 years running — an eternity for modern South Korea. The interior is made mainly of cheap, yellowed linoleum, which I would discover is the litmus test for whether a place was New Seoul or Old Seoul.
“We’ve come so far,” Jae-ryung told me as the waitress set down some 20 small plates of banchan, or appetizers and side dishes, including glass noodles made from potato starch, oyster pancakes, a vegetable pancake, fried zucchini and kimchi. “We’ve jumped ahead so many steps in such a short time. There’s such a void between my mother and I. And in a larger way, because we’ve always had China or Japan or America telling us, ‘Go this way! Go that way!’ I’m not sure we really know what we are. You probably know what we are better than we do, in a way. It’s very hard for us to see it.”
The main dishes came, served in the middle of the table, to be shared — everything is communal here: fried corvine, baby octopus salad, tofu dishes, the tenderest abalone. Then came an obscene dish called sam hap, steamed pork belly with kimchi and fermented skate fish, with gnarly shanks of cartilage. I struggled between the stink of the skate and the toughness of the tendons. And as I digested, I thought that even if Korea does rebrand itself into a sleek capital of technology and design, the food will always serve as a hot line to the deeper soul of Korea: hearty, not so pretty, sometimes strange and almost always satisfying.
Jae-ryung’s openness and willingness to include me in a conversation about her country’s identity reminded me of something Cho, the architect, had told me. In Asia, he said, Koreans are often compared to Irish and Italians. They’re highly emotional, they like to drink, they like to read, they’re very vain, but they’re also very warm. Describing the volatility of his countrymen, Cho explained, “We have what is called a ‘steel pot mentality.’ We boil very quickly and cool very quickly!”
I was reminded of this with the cabdriver who insisted on trying my hand-rolled cigarette, nonchalant about my foreigner germs. I couldn’t think of another country where this might happen — certainly not Japan or Thailand. I thought of this, too, when watching couples in restaurants, cuddling and talking, in a way one also doesn’t see elsewhere in Asia. South Korean culture seemed centered around a kind of togetherness and intimacy that was quite appealing. Seoul seemed proof that Malthus was 180 degrees wrong, that overcrowding and prolonged suffering just make people nicer, warmer and more fun — if a little eccentric.
Who had told me that if I wanted to understand South Korea, I had to understand the opposition underlying the culture. “Austerity is what we like to present of ourselves — disciplinarian, Confucian Chinese-influenced, you know, that’s the cool side, the strict side, with the spartan apartments, which is all about stability and a ticket to middle class,” he said. “But then there’s the shamanistic side. You look at the urban environment, all these crazy signs and this crazy development — it’s more like Taoism. That’s the really lively side.”
One day, Jae-ryung and I took a walk into Euljiro, a neighborhood reminiscent of New York’s Canal Street 30 years ago: lots of trade-oriented shops specializing in sewing machines, digital lighting supplies, AC adapters and so on. A cacophony of advertisements climbed up the building sides four stories high. We ducked into a tiny alleyway, lined with grim-looking machine repair shops, to a door with a small, rusting sign. Jae-ryung was bringing me to see a fortuneteller, a man her mother and grandmother had consulted for decades. I was about to get a glimpse of the old, shamanistic, unreconstructed Korea.
The fortuneteller sat on the floor in a den surrounded by bookshelves overflowing with ancient, dusty consulting charts and books in Braille. The floor was covered in the now familiar yellow linoleum of Old Seoul. The fortuneteller, nearly deaf, nearly blind and wearing sunglasses, shouted as he asked me through clenched false teeth when my birthday was. I told him, and for 10 minutes he squinted into his charts, which he held with one hand, while making calculations on the other hand using an abacus-like device. Having divined my future, he barked out, “You spend too much! You earn little, and you spend too much!” He told me that if I got married in 2010 and let my wife handle the finances, I might have a chance in life. In fact, I would have a family that would last me until I die. He then cried out a final admonition: “You should have become a technician!”
After my encounter with the fortuneteller, I decided to go further into Korea’s shamanistic side, to dig deeper into the culture’s underbelly. I found myself in a five-story bathhouse in the famous foreigner zone in Itaewon, north of the Han. Formerly known as the red-light district, the area still has a couple of streets with transvestites and strip clubs, but it’s quickly becoming gentrified. For South Koreans, bathhouses function like public parks. There were dozens of nooks and side rooms for people to read manga, use the Internet, watch TV, eat and lounge by the hour. It wasn’t the decision to go to the bathhouse that was so exotic — it was the choice of having a full-body scrub. I’d been told it would be painful — “kind of like going to the car wash,” Cho had said. “They just strip you down and skin you. With some rubbery thing, some abrasive thing. You will feel brand-new, like brand-new baby.”
The bathhouse part was delightful. I had been warned that the older men might unabashedly check me out, having never seen a naked Westerner before. No big deal. Then a nearly naked man who looked like an Asian version of Howard Cosell started to scrub me as hard as he possibly could with something like Brillo pads. I kept grunting in pain, but Howard didn’t care. Thirty minutes and 16 dollars later, I was a broken man with weird little scabs all over my body. So much for brand-new baby.
No matter how excruciating the massage was, these old-school, pre-consumer culture pleasures endeared me to the city. My next thought, of course, was how much longer they might last. The city is going to keep changing — and very fast. Today, it’s nowhere near as “cool” as, say, Tokyo or London. And yet it’s impossible to escape the feeling that Seoul is the future. It throbs. As Chun called it, it’s “a 24-7 city,” open late, eager to do business, confident about what tomorrow may bring.
On my last day in Seoul, I had lunch with Kim Min-hee and her colleague, Kwon Mi-sun, two 30-something editors at a popular publishing company called KCC, the Korea Copyright Center.
We sat in a coffee shop in Hong Dae, the neighborhood surrounding Hongik University, a large art school. Kim looked out the window at all the kids and surprised me by saying she’s not sure she wants to have any of her own. “We’ve built this country up so much, and the world is so polluted. I just feel like I’d feel so guilty about leaving a kid on this planet, after what we and our parents have done.” She fake-shrugged, addressing her rhetorical progeny with a wince — “Sorry we polluted everything so much!”
For Kim and Kwon, Korea had reached the limits of traditionally defined “accomplishment.” It kind of seemed like a good idea to let the society relax, download a bit. Nearly everyone I met had a sibling who had or was about to tune out or drop out. Cho’s sister had moved out to the country to live on a farm. Chun and his girlfriend had moved an hour and a half outside Seoul to live in a big warehouse. Who needed the hustle and bustle anymore?
In the past, the most popular books sold by KCC were about success and self-help. South Koreans were never interested in reading about themselves. All they wanted were books from foreigners about how to get ahead and how to become better — at everything. Recently, however, people had become hungry for domestic authors, writing about Korean life, Korean society. Even more surprising, poetry books were becoming popular — with big print and meditative illustrations.
The recent global economic crash had simply sped along the process of disillusionment with growth, Kim said. Ever since the financial crisis, they said, South Koreans had begun seeing the limitations of a world defined entirely by fickle material success. “People in modern Korean life are just going and going and going,” she said. “They finally just want to be able to have a moment of peace!” ◦
Friday, September 24, 2010
Taco Bell hopes to spice up South Korea
By Chico Harlan
Washington Post Staff Writer
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/24/AR2010092402715_pf.html
SEOUL - In South Korea, where talk of the border rarely involves dinner options, Taco Bell this summer opened a restaurant, its only one in Asia. But indeed, not its first.
Taco Bell had tried Asia before, and the pair didn't get along. The chain closed its two previous South Korean franchises in the early 1990s. It then pulled out of China in 2008, restoring Asia's reputation as a continent unconquered by the taco.
Taco Bell chose Seoul for its Asian re-launch, though, for a reason that has little to do with refried beans and sour cream. Seoul appealed to Taco Bell, executives say, because few cities on Earth can better turn a novelty into a mainstream obsession. In the time it takes for other countries to warm to a new product, South Koreans have already liked it, loved it, photographed it, blogged about it and waited in 30-minutes lines for it for two weeks straight.
Far away from a customer base in the United States that knows the delights and agonies of late-night taco dining, paid for entirely with pocket change, Taco Bell seeks a higher level of trendiness in South Korea. The new store's menu appears on an LED board. Wall hangings display a succession of culinary mood words: sizzle, steam, smash.
Shin Sang Yong, chief executive officer of M2G Ltd., the company that brought the chain to South Korea, thinks Taco Bell can work here because "people are ready for something new. They've had 20 years of pizza and hamburgers." Shin envisions opening 30 South Korean franchises in the next three years. One hundred in the next six. Right now, Seoul has about 30 Mexican and Tex-Mex restaurants.
The city's three-story Taco Bell opened July 11, with 40-minute lines on the first day. Business in the first month exceeded projections by 20 percent, Shin said.
It remains to be seen whether Taco Bell will prosper here, or elsewhere in Asia, over the long term. Since Taco Bell last existed here 15 years ago, little has fundamentally changed in the way people eat. What's different is how they decide where to eat. In the world's most wired country, two of every five people, according to some estimates, maintain a blog. One of South Korea's preeminent search engines, Naver, has a special category for "powerbloggers," many of whom love writing about food. Taco Bell has held special events for these bloggers, hoping to win their approval.
"They can kill a company," said Paul Yang, general manager of M2G. "People here are very fast. One of the fastest places to pick up trends. They lead pop culture in Asia - ahead of Japan, ahead of Hong Kong."
Food trends in South Korea can start from almost anywhere. In the past few years, South Korea has had sudden love affairs with doughnuts, frozen yogurt and waffles.
The kebab craze started on a street corner in 2006, when Turkey native Omer Yilmaz sold his signature dish to a few fanatics, who spread the gospel. Soon Yilmaz had one store, then two more, and now there are many copycats.
This year, self-trained chef Suji Park - who had created a mini-empire of restaurants that taught South Koreans to love Western-style brunch - has her sights on starting a new trend, introducing South Koreans to piled-high pastrami sandwiches.
It is a cross-cultural truth that people like large quantities of sodium and fat, whether melted atop crust, sandwiched in a bun or stuffed in a tortilla. But Mexican food still faces some hurdles in Asia. Unlike other Yum! Brands franchises - KFC and Pizza Hut, in particular - Taco Bell has a limited international footprint, with just 250 stores outside the United States. Theories abound as to why Mexican food is a hard sell, but many food enthusiasts in Seoul say they think South Koreans are itching not just for Western food, but also for food that Westerners like.
"A crowd draws a crowd," said Daniel Gray, a Seoul resident and food blogger who offers Korean cooking classes and restaurant tours. "The fact that the foreigners start to go there, there's a huge line around the block - everybody sees that."
Taco Bell's menu, for now, is simple: burritos, tacos, nachos, quesadillas and other demonstrations of nacho cheese engineering, such as the Fries BellGrande, which consists of fries, sour cream, cheese and meat all layered together.
Yang says the restaurant might soon put up a sign showing newcomers how to properly eat a taco; so far, he has noticed South Koreans struggle to angle their heads, leading to a "taco at the wrong orientation," and spillage of ingredients.
Several young women sat on the second floor of Seoul's Taco Bell one recent evening, devoted equally to consuming and photographing their food. Jung Ji Yoon, a 20-year-old college student, said that she had eaten at Taco Bell several times this summer, finding the taste to be "good - especially compared to the price."
But Jung recently decided to go on a diet, meaning that on this particular night, she planned to use Taco Bell as a meeting spot only, ordering nothing. She brought a small packet of tofu instead. ◦
Washington Post Staff Writer
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/24/AR2010092402715_pf.html
SEOUL - In South Korea, where talk of the border rarely involves dinner options, Taco Bell this summer opened a restaurant, its only one in Asia. But indeed, not its first.
Taco Bell had tried Asia before, and the pair didn't get along. The chain closed its two previous South Korean franchises in the early 1990s. It then pulled out of China in 2008, restoring Asia's reputation as a continent unconquered by the taco.
Taco Bell chose Seoul for its Asian re-launch, though, for a reason that has little to do with refried beans and sour cream. Seoul appealed to Taco Bell, executives say, because few cities on Earth can better turn a novelty into a mainstream obsession. In the time it takes for other countries to warm to a new product, South Koreans have already liked it, loved it, photographed it, blogged about it and waited in 30-minutes lines for it for two weeks straight.
Far away from a customer base in the United States that knows the delights and agonies of late-night taco dining, paid for entirely with pocket change, Taco Bell seeks a higher level of trendiness in South Korea. The new store's menu appears on an LED board. Wall hangings display a succession of culinary mood words: sizzle, steam, smash.
Shin Sang Yong, chief executive officer of M2G Ltd., the company that brought the chain to South Korea, thinks Taco Bell can work here because "people are ready for something new. They've had 20 years of pizza and hamburgers." Shin envisions opening 30 South Korean franchises in the next three years. One hundred in the next six. Right now, Seoul has about 30 Mexican and Tex-Mex restaurants.
The city's three-story Taco Bell opened July 11, with 40-minute lines on the first day. Business in the first month exceeded projections by 20 percent, Shin said.
It remains to be seen whether Taco Bell will prosper here, or elsewhere in Asia, over the long term. Since Taco Bell last existed here 15 years ago, little has fundamentally changed in the way people eat. What's different is how they decide where to eat. In the world's most wired country, two of every five people, according to some estimates, maintain a blog. One of South Korea's preeminent search engines, Naver, has a special category for "powerbloggers," many of whom love writing about food. Taco Bell has held special events for these bloggers, hoping to win their approval.
"They can kill a company," said Paul Yang, general manager of M2G. "People here are very fast. One of the fastest places to pick up trends. They lead pop culture in Asia - ahead of Japan, ahead of Hong Kong."
Food trends in South Korea can start from almost anywhere. In the past few years, South Korea has had sudden love affairs with doughnuts, frozen yogurt and waffles.
The kebab craze started on a street corner in 2006, when Turkey native Omer Yilmaz sold his signature dish to a few fanatics, who spread the gospel. Soon Yilmaz had one store, then two more, and now there are many copycats.
This year, self-trained chef Suji Park - who had created a mini-empire of restaurants that taught South Koreans to love Western-style brunch - has her sights on starting a new trend, introducing South Koreans to piled-high pastrami sandwiches.
It is a cross-cultural truth that people like large quantities of sodium and fat, whether melted atop crust, sandwiched in a bun or stuffed in a tortilla. But Mexican food still faces some hurdles in Asia. Unlike other Yum! Brands franchises - KFC and Pizza Hut, in particular - Taco Bell has a limited international footprint, with just 250 stores outside the United States. Theories abound as to why Mexican food is a hard sell, but many food enthusiasts in Seoul say they think South Koreans are itching not just for Western food, but also for food that Westerners like.
"A crowd draws a crowd," said Daniel Gray, a Seoul resident and food blogger who offers Korean cooking classes and restaurant tours. "The fact that the foreigners start to go there, there's a huge line around the block - everybody sees that."
Taco Bell's menu, for now, is simple: burritos, tacos, nachos, quesadillas and other demonstrations of nacho cheese engineering, such as the Fries BellGrande, which consists of fries, sour cream, cheese and meat all layered together.
Yang says the restaurant might soon put up a sign showing newcomers how to properly eat a taco; so far, he has noticed South Koreans struggle to angle their heads, leading to a "taco at the wrong orientation," and spillage of ingredients.
Several young women sat on the second floor of Seoul's Taco Bell one recent evening, devoted equally to consuming and photographing their food. Jung Ji Yoon, a 20-year-old college student, said that she had eaten at Taco Bell several times this summer, finding the taste to be "good - especially compared to the price."
But Jung recently decided to go on a diet, meaning that on this particular night, she planned to use Taco Bell as a meeting spot only, ordering nothing. She brought a small packet of tofu instead. ◦
Monday, September 20, 2010
A visitor to Seoul can't help but notice technology's ubiquity
Constraints, Fresh Starts, and Seoul
By Scott Anthony
http://blogs.hbr.org/anthony/2010/09/constraints_fresh_starts_and_s.html
I've been in Seoul, South Korea for most of this week. It's my sixth journey here over the course of the past year, and I find I enjoy the city more with each visit. There's a vibrancy you feel walking down the streets, a sense that the country — which has achieved so much over the past four decades — is still on the up-swing.
A visitor to Seoul can't help but notice technology's ubiquity. On the subway you'll see people watching high quality television on their handsets. The broadband speed at hotels puts the United States to shame. Sensors on escalators help to conserve energy by turning the escalator off when it is not being used. The toilets have more buttons than an Xbox controller (this is not hyperbole).
Commenting on the broadband speed available here sparked, one colleague said to me, "It's so fast. I guess the U.S. just doesn't have the right government policy to support the deployment of high-speed Internet access."
Key political differences may have helped Korea build world-class Internet infrastructure, but what also helped is the fact that constraints and fresh starts can be innovation rocket fuel.
About half of South Korea's 50 million people live in the greater Seoul area. That constrained, contained population is a boon to certain forms of innovation, because it makes provisions of services much more economical, just as there are some business models that work well in Manhattan but nowhere else in the United States.
My colleague Clayton Christensen served a two-year mission for his church in South Korea in the early 1970s. When he describes his time there, he always mentions two things. First, he talks about how he was highlighted in a newspaper as the tallest person in Korea. Second, he talks about the country's abject poverty. In the Korean edition of The Innovator's Guide to Growth, he wrote:
"When I arrived, the country was deeply impoverished. I remember watching, for example, as workers building a new sports stadium in Pusan carried hand-mixed concrete up bamboo scaffolding in back packs," he wrote. "A few years ago I visited Mongolia, where my daughter Annie was serving a mission for our church. Mongolia is today one of the poorest countries in the world. But it is far more economically advanced than Korea was 30 years ago."
It's hard to believe that when you look around the gleaming metropolis today. The advantage, of course, is that Seoul got to design the modern version of its city basically from the ground up. That means it has a modern, super-efficient subway system, roads that can go as wide as 10 lanes, and an underground infrastructure that is easier to upgrade than the tangled mess that lies beneath older cities.
Incumbents don't have the luxury of making fresh starts, making it harder for them to master game-changing innovation. As an analogy, think about how easy it is for children to learn new languages. I've watched my four-year-old son pick up Chinese in our six months in Singapore. He doesn't have to unlearn anything to speak the language, so it's easy for him. I struggle because I have to de-program parts of my brain before I can learn.
Still, there are three things a company can do to get some of fresh start benefits:
• Bring in outside perspectives. Outsiders help to ensure that companies don't end up mindlessly mimicking past behavior.
• Limit borrowing from the core business. Remember, every asset has a corresponding liability. I always advise companies to ask a simple question. "If an entrepreneur had access to a resource for free, would they take it?" If not, it's a good sign that you shouldn't "gift" your capability to an innovation venture.
• Impose constraints. Narrow budgets and tight time frames can force people to follow novel approaches because they have no other choice.
If they follow these tenets, companies can get the best of both worlds, the resources of an incumbent that startups can only dream of, and the liberation that comes from fresh starts. ◦
By Scott Anthony
http://blogs.hbr.org/anthony/2010/09/constraints_fresh_starts_and_s.html
I've been in Seoul, South Korea for most of this week. It's my sixth journey here over the course of the past year, and I find I enjoy the city more with each visit. There's a vibrancy you feel walking down the streets, a sense that the country — which has achieved so much over the past four decades — is still on the up-swing.
A visitor to Seoul can't help but notice technology's ubiquity. On the subway you'll see people watching high quality television on their handsets. The broadband speed at hotels puts the United States to shame. Sensors on escalators help to conserve energy by turning the escalator off when it is not being used. The toilets have more buttons than an Xbox controller (this is not hyperbole).
Commenting on the broadband speed available here sparked, one colleague said to me, "It's so fast. I guess the U.S. just doesn't have the right government policy to support the deployment of high-speed Internet access."
Key political differences may have helped Korea build world-class Internet infrastructure, but what also helped is the fact that constraints and fresh starts can be innovation rocket fuel.
About half of South Korea's 50 million people live in the greater Seoul area. That constrained, contained population is a boon to certain forms of innovation, because it makes provisions of services much more economical, just as there are some business models that work well in Manhattan but nowhere else in the United States.
My colleague Clayton Christensen served a two-year mission for his church in South Korea in the early 1970s. When he describes his time there, he always mentions two things. First, he talks about how he was highlighted in a newspaper as the tallest person in Korea. Second, he talks about the country's abject poverty. In the Korean edition of The Innovator's Guide to Growth, he wrote:
"When I arrived, the country was deeply impoverished. I remember watching, for example, as workers building a new sports stadium in Pusan carried hand-mixed concrete up bamboo scaffolding in back packs," he wrote. "A few years ago I visited Mongolia, where my daughter Annie was serving a mission for our church. Mongolia is today one of the poorest countries in the world. But it is far more economically advanced than Korea was 30 years ago."
It's hard to believe that when you look around the gleaming metropolis today. The advantage, of course, is that Seoul got to design the modern version of its city basically from the ground up. That means it has a modern, super-efficient subway system, roads that can go as wide as 10 lanes, and an underground infrastructure that is easier to upgrade than the tangled mess that lies beneath older cities.
Incumbents don't have the luxury of making fresh starts, making it harder for them to master game-changing innovation. As an analogy, think about how easy it is for children to learn new languages. I've watched my four-year-old son pick up Chinese in our six months in Singapore. He doesn't have to unlearn anything to speak the language, so it's easy for him. I struggle because I have to de-program parts of my brain before I can learn.
Still, there are three things a company can do to get some of fresh start benefits:
• Bring in outside perspectives. Outsiders help to ensure that companies don't end up mindlessly mimicking past behavior.
• Limit borrowing from the core business. Remember, every asset has a corresponding liability. I always advise companies to ask a simple question. "If an entrepreneur had access to a resource for free, would they take it?" If not, it's a good sign that you shouldn't "gift" your capability to an innovation venture.
• Impose constraints. Narrow budgets and tight time frames can force people to follow novel approaches because they have no other choice.
If they follow these tenets, companies can get the best of both worlds, the resources of an incumbent that startups can only dream of, and the liberation that comes from fresh starts. ◦
Wednesday, July 07, 2010
South Korea's Ambitious Global Campus Is Off to a Shaky Start
By David McNeill
The sea has been pushed back, the foundations laid, and cranes toil over the Songdo Global University Campus, a Promethean $1-billion attempt to do the impossible: bring thousands of students from around the world to what was once literally a Korean backwater.
But as its American partners survey the wreckage wrought by a two-year economic storm, several are drastically scaling back their commitments, putting a question mark over the entire project before a single student signs up for classes.
Warwick Arden, provost of North Carolina State University, one of five American colleges that have signed contracts to deliver education programs at the new campus, has announced an "indefinite hold" on North Carolina State's participation in the Songdo project. "At a time when there have been major changes in the world economy, we are not willing to put campus funds into this project," Mr. Arden said. "It has to be self-sustaining."
Enrollment is scheduled to start next summer. By the fall of 2011, this government-supported university by the Yellow Sea, about an hour from South Korea's capital, Seoul, will begin teaching undergraduates, insists its president, Hee Yhon Song.
"We have no past reference, but I think we can reach 10,000 to 12,000 students by the end of the decade," said Mr. Song. About a third of those are expected to come from America, another third from across Asia. "Eventually we aim to have 30,000 students here."
Skeptics call that a pipe dream, despite what Seung Joo Lee, a local Incheon government spokesman, calls "rock solid" financial support from the state. For now, however, nobody knows if students will come or if the U.S. partners are in for the long haul, as even the ebullient Mr. Song admits. "The danger is that they will come, have their little adventure, then leave."
That danger appears to have grown amid the fallout from the global economic recession, which has forced many U.S. colleges to circle their financial wagons and revise plans for foreign expansion.
The State University of New York at Stony Brook, which initially planned to open engineering and business programs with 250 to 300 students next fall and enroll 1,500 students by 2016, now says it is "suspending" undergraduate programs in Songdo. It will offer a "limited number" of graduate programs in wireless and information technology.
The University of Delaware, meanwhile, one of the five contracted partners, has commissioned a private marketing survey on the project's viability. That is not to be interpreted as sign that it intends to pull out, says Rodriquez Havidán, the university's deputy provost.
"We plan to move forward, but we need to make sure it is economically feasible," he says. "No commitment has been made until the financial package is secure and we're sure this is a financially viable project."
Local Commitments
Local and central government agencies are splitting the expenses involved in developing the campus, so that U.S. institutions do not need to pay any upfront costs.
Mr. Lee acknowledges that the contracts make few formal demands on the U.S. colleges apart from that they turn up to what is essentially an empty shell and teach degree programs in engineering, languages, and business. "We respect their reputation and don't ask for legal guarantees," he says.
Mr. Lee, who is executive director of the Knowledge and Industry Division of Incheon's Free Economic Zone Authority, says he is "absolutely confident" about the university's success.
"It will take time to build up the student numbers—four to five years—but we'll get there, now that we have signed up the American universities."
George Mason University and the University of Southern California are the other two confirmed U.S. partners. Anne Schiller, George Mason's associate provost for international projects, says her university has "not scaled back" at all from its commitment to Songdo, and is planning programs in economics, public and international affairs, and management. She calls the university a singularly exciting project and says George Mason considers it "an innovative and promising model for academic collaboration."
The University of Missouri, the Georgia Institute of Technology, and the University of Surrey, in Britain, are also linked to the campus. Mr. Song has recently been stateside trying to bring the University of Florida on board.
Each college has received about $1-million in seed money and rent-free classrooms and accommodations, along with the offer of up to $9-million in interest-free loans. A 700-unit student dormitory is scheduled to open later this year.
"We don't want the U.S. universities to risk one penny of their own money," says Mr. Song. "In return, we ask that they don't repatriate profits and instead invest the surplus back into the campus."
Success or failure, the global campus is a "wake-up call" to U.S. higher education, says Steven Lee, director of USC's first office in Seoul. Mr. Lee acknowledges that American colleges still lead the world, but warns that 30 years ago, the U.S. car industry was king, too.
USC's Marshall School of Business will begin sending professors and undergraduates to the new campus next year, with other schools, including the undergraduate college and the Annenberg School for Communication and Journalism, "under examination." The university will immediately begin recruiting locally, aiming at an enrollment target of 30 percent from the United States, 40 percent from South Korea, and the rest from Asia.
"In addition to degree programs, through which students will be able to complete course work in Songdo and Los Angeles, we are considering offering certificate programs for the nontraditional students," says Mr. Lee. "All students will be admitted to USC and will be able to take courses in the two locations." He calls Songdo "an extension of the main campus."
'Start Small'
USC's ambitious targets, including a "substantial yield" of students from its U.S. campus, remain the exception, however. Stony Brook forecasts "very few" U.S. students. North Carolina intends to "start small," says Mr. Arden. "We will see if it is successful and can always grow further up the line."
George Mason has commissioned its own marketing survey to identify demand, ahead of a pilot program next fall.
Critics say the new institution will struggle against the perception that its degrees won't be worth the same as their U.S., or even Korean, equivalent. Some are skeptical of the entire Songdo project, an eye-popping attempt to construct a new city on reclaimed land, hinged around high-tech industries, "hub" research facilities, and colleges, some of which have already moved into the area.
"Let's just say there are a lot of structural impediments to getting this thing up and running," says John M. Frankl, associate dean for international affairs at Yonsei University, South Korea's top private university. Yonsei is one of several Korean colleges that have built new facilities at Songdo in return for cheap land and other incentives.
Insiders say Yonsei's management faced stiff faculty opposition to the move: Its newest division, Underwood International College, was persuaded to leave Seoul only after a lot of arm-twisting. The university hopes that the division will lure the much bigger engineering and business faculties.
"Everyone else is taking a wait-and-see approach because they fear this degree will be devalued," says a Yonsei professor, speaking on condition of anonymity. "A lot of faculty and students don't want to go down there." Like many Songdo observers, he questions the chances of success for an entirely new college so far outside of South Korea's capital.
USC's Mr. Lee swats away such concerns. "We don't perceive this to be a weaker or lesser operation than our U.S. institution. We will have strict quality controls for teaching, research, and admissions, and keep standards high."
One possible indicator of Songdo's problems in winning credibility and attracting non-Korean students can be seen at the city's flagship International School, which has yet to teach a single student. Its state-of-the-art facilities and 21 teachers have been idle for over a year as they wait for the ministry of education to relax its requirement that 70 percent of all students be from outside South Korea. "If the government left us to ourselves we could open tomorrow," says the school's principal, Andy Valadka.
The global campus is also haunted by the failure of U.S. branch campuses to take root in neighboring Japan in the 1980s and 1990s, which Mr. Lee attributes to too little government support. "The difference here is that the Korean government is behind this project. The Japanese ministry of education didn't recognize the status of American institutions. Students weren't even entitled to transport passes because their universities weren't accredited."
If Mr. Song is worried by those problems, he isn't letting it show. "I didn't have a single penny or a piece of land when I started, and look where we are now," he says, in a restaurant overlooking his sprawling new campus. "People always think small, but I like to think big."
http://chronicle.com/article/South-Koreas-Ambitious-Global/66149/
◦
The sea has been pushed back, the foundations laid, and cranes toil over the Songdo Global University Campus, a Promethean $1-billion attempt to do the impossible: bring thousands of students from around the world to what was once literally a Korean backwater.
But as its American partners survey the wreckage wrought by a two-year economic storm, several are drastically scaling back their commitments, putting a question mark over the entire project before a single student signs up for classes.
Warwick Arden, provost of North Carolina State University, one of five American colleges that have signed contracts to deliver education programs at the new campus, has announced an "indefinite hold" on North Carolina State's participation in the Songdo project. "At a time when there have been major changes in the world economy, we are not willing to put campus funds into this project," Mr. Arden said. "It has to be self-sustaining."
Enrollment is scheduled to start next summer. By the fall of 2011, this government-supported university by the Yellow Sea, about an hour from South Korea's capital, Seoul, will begin teaching undergraduates, insists its president, Hee Yhon Song.
"We have no past reference, but I think we can reach 10,000 to 12,000 students by the end of the decade," said Mr. Song. About a third of those are expected to come from America, another third from across Asia. "Eventually we aim to have 30,000 students here."
Skeptics call that a pipe dream, despite what Seung Joo Lee, a local Incheon government spokesman, calls "rock solid" financial support from the state. For now, however, nobody knows if students will come or if the U.S. partners are in for the long haul, as even the ebullient Mr. Song admits. "The danger is that they will come, have their little adventure, then leave."
That danger appears to have grown amid the fallout from the global economic recession, which has forced many U.S. colleges to circle their financial wagons and revise plans for foreign expansion.
The State University of New York at Stony Brook, which initially planned to open engineering and business programs with 250 to 300 students next fall and enroll 1,500 students by 2016, now says it is "suspending" undergraduate programs in Songdo. It will offer a "limited number" of graduate programs in wireless and information technology.
The University of Delaware, meanwhile, one of the five contracted partners, has commissioned a private marketing survey on the project's viability. That is not to be interpreted as sign that it intends to pull out, says Rodriquez Havidán, the university's deputy provost.
"We plan to move forward, but we need to make sure it is economically feasible," he says. "No commitment has been made until the financial package is secure and we're sure this is a financially viable project."
Local Commitments
Local and central government agencies are splitting the expenses involved in developing the campus, so that U.S. institutions do not need to pay any upfront costs.
Mr. Lee acknowledges that the contracts make few formal demands on the U.S. colleges apart from that they turn up to what is essentially an empty shell and teach degree programs in engineering, languages, and business. "We respect their reputation and don't ask for legal guarantees," he says.
Mr. Lee, who is executive director of the Knowledge and Industry Division of Incheon's Free Economic Zone Authority, says he is "absolutely confident" about the university's success.
"It will take time to build up the student numbers—four to five years—but we'll get there, now that we have signed up the American universities."
George Mason University and the University of Southern California are the other two confirmed U.S. partners. Anne Schiller, George Mason's associate provost for international projects, says her university has "not scaled back" at all from its commitment to Songdo, and is planning programs in economics, public and international affairs, and management. She calls the university a singularly exciting project and says George Mason considers it "an innovative and promising model for academic collaboration."
The University of Missouri, the Georgia Institute of Technology, and the University of Surrey, in Britain, are also linked to the campus. Mr. Song has recently been stateside trying to bring the University of Florida on board.
Each college has received about $1-million in seed money and rent-free classrooms and accommodations, along with the offer of up to $9-million in interest-free loans. A 700-unit student dormitory is scheduled to open later this year.
"We don't want the U.S. universities to risk one penny of their own money," says Mr. Song. "In return, we ask that they don't repatriate profits and instead invest the surplus back into the campus."
Success or failure, the global campus is a "wake-up call" to U.S. higher education, says Steven Lee, director of USC's first office in Seoul. Mr. Lee acknowledges that American colleges still lead the world, but warns that 30 years ago, the U.S. car industry was king, too.
USC's Marshall School of Business will begin sending professors and undergraduates to the new campus next year, with other schools, including the undergraduate college and the Annenberg School for Communication and Journalism, "under examination." The university will immediately begin recruiting locally, aiming at an enrollment target of 30 percent from the United States, 40 percent from South Korea, and the rest from Asia.
"In addition to degree programs, through which students will be able to complete course work in Songdo and Los Angeles, we are considering offering certificate programs for the nontraditional students," says Mr. Lee. "All students will be admitted to USC and will be able to take courses in the two locations." He calls Songdo "an extension of the main campus."
'Start Small'
USC's ambitious targets, including a "substantial yield" of students from its U.S. campus, remain the exception, however. Stony Brook forecasts "very few" U.S. students. North Carolina intends to "start small," says Mr. Arden. "We will see if it is successful and can always grow further up the line."
George Mason has commissioned its own marketing survey to identify demand, ahead of a pilot program next fall.
Critics say the new institution will struggle against the perception that its degrees won't be worth the same as their U.S., or even Korean, equivalent. Some are skeptical of the entire Songdo project, an eye-popping attempt to construct a new city on reclaimed land, hinged around high-tech industries, "hub" research facilities, and colleges, some of which have already moved into the area.
"Let's just say there are a lot of structural impediments to getting this thing up and running," says John M. Frankl, associate dean for international affairs at Yonsei University, South Korea's top private university. Yonsei is one of several Korean colleges that have built new facilities at Songdo in return for cheap land and other incentives.
Insiders say Yonsei's management faced stiff faculty opposition to the move: Its newest division, Underwood International College, was persuaded to leave Seoul only after a lot of arm-twisting. The university hopes that the division will lure the much bigger engineering and business faculties.
"Everyone else is taking a wait-and-see approach because they fear this degree will be devalued," says a Yonsei professor, speaking on condition of anonymity. "A lot of faculty and students don't want to go down there." Like many Songdo observers, he questions the chances of success for an entirely new college so far outside of South Korea's capital.
USC's Mr. Lee swats away such concerns. "We don't perceive this to be a weaker or lesser operation than our U.S. institution. We will have strict quality controls for teaching, research, and admissions, and keep standards high."
One possible indicator of Songdo's problems in winning credibility and attracting non-Korean students can be seen at the city's flagship International School, which has yet to teach a single student. Its state-of-the-art facilities and 21 teachers have been idle for over a year as they wait for the ministry of education to relax its requirement that 70 percent of all students be from outside South Korea. "If the government left us to ourselves we could open tomorrow," says the school's principal, Andy Valadka.
The global campus is also haunted by the failure of U.S. branch campuses to take root in neighboring Japan in the 1980s and 1990s, which Mr. Lee attributes to too little government support. "The difference here is that the Korean government is behind this project. The Japanese ministry of education didn't recognize the status of American institutions. Students weren't even entitled to transport passes because their universities weren't accredited."
If Mr. Song is worried by those problems, he isn't letting it show. "I didn't have a single penny or a piece of land when I started, and look where we are now," he says, in a restaurant overlooking his sprawling new campus. "People always think small, but I like to think big."
http://chronicle.com/article/South-Koreas-Ambitious-Global/66149/
◦
Saturday, June 26, 2010
Video: Why is South Korea so Wired?
South Korean Business Giant Explains Why His Country is One of the Most Wired in the World
MICHELLE FLANDREAU (ABC News)
http://abcnews.go.com/GMA/south-korea-wired/story?id=11011988
Juju Chang sat down for an interview with Yongmann Park, chairman of Doosan Corporation, Korea's giant conglomerate. He's a big-time businessman and also full-time gadget guru. Juju went to his office, embarked on a gadget tour and discussed why Korea is so wired.
Emptying a box full of Park's old cell phones onto his desk, Juju jokingly said to him, "I'm embarrassed for you."
Park, a self-proclaimed "gadget addict," can't bear to part with these past phones. Among his collection is the first version of Samsung's BlackJack, which came out in 2007. The three-year-old phone is among at least 10 others he's recently retired.
In his office, Park has four computers, multiple cell phones he currently uses, and even a portable personal router that allows him to get wide-area broadband access and connect to Wi-Fi.
While Park said he has a "crazy curiosity" for new things, he's not alone. A full 95 percent of households in South Korea have broadband internet access the highest in the world. Singapore is second to South Korea, with broadband connection in 88 percent of homes. The U.S. ranks 20th, with broadband connection in 60 percent of homes.
Chairman Park said one reason South Korea is so wired is due to the country's housing structure, especially in Seoul.
"If you look out the window, Korea has a forest of high-rise apartments, which is the densely-populated residential area. It will make (it) easier (for) broadband to get connected into those areas. Because you pull one line, then you instantly hook up to a thousand household(s)," Park said.
Park explained the high-rise apartments are much easier to penetrate with broadband service than a typical U.S. neighborhood of suburban homes.
He also suggested Korean society itself is hard-wired for technological advances.
"Korea has been going through a lot of changes in 20th century and 21st century," Park said. "It makes Korean people curious about new things. Because unless you know about what's coming, then, you know& you should know what's coming to make yourself successful."
When asked if he could survive in a world without Wi-Fi, Park was silent for a moment, apparently thinking hard. His final answer? A resounding, "No!" ◦
MICHELLE FLANDREAU (ABC News)
http://abcnews.go.com/GMA/south-korea-wired/story?id=11011988
Juju Chang sat down for an interview with Yongmann Park, chairman of Doosan Corporation, Korea's giant conglomerate. He's a big-time businessman and also full-time gadget guru. Juju went to his office, embarked on a gadget tour and discussed why Korea is so wired.
Emptying a box full of Park's old cell phones onto his desk, Juju jokingly said to him, "I'm embarrassed for you."
Park, a self-proclaimed "gadget addict," can't bear to part with these past phones. Among his collection is the first version of Samsung's BlackJack, which came out in 2007. The three-year-old phone is among at least 10 others he's recently retired.
In his office, Park has four computers, multiple cell phones he currently uses, and even a portable personal router that allows him to get wide-area broadband access and connect to Wi-Fi.
While Park said he has a "crazy curiosity" for new things, he's not alone. A full 95 percent of households in South Korea have broadband internet access the highest in the world. Singapore is second to South Korea, with broadband connection in 88 percent of homes. The U.S. ranks 20th, with broadband connection in 60 percent of homes.
Chairman Park said one reason South Korea is so wired is due to the country's housing structure, especially in Seoul.
"If you look out the window, Korea has a forest of high-rise apartments, which is the densely-populated residential area. It will make (it) easier (for) broadband to get connected into those areas. Because you pull one line, then you instantly hook up to a thousand household(s)," Park said.
Park explained the high-rise apartments are much easier to penetrate with broadband service than a typical U.S. neighborhood of suburban homes.
He also suggested Korean society itself is hard-wired for technological advances.
"Korea has been going through a lot of changes in 20th century and 21st century," Park said. "It makes Korean people curious about new things. Because unless you know about what's coming, then, you know& you should know what's coming to make yourself successful."
When asked if he could survive in a world without Wi-Fi, Park was silent for a moment, apparently thinking hard. His final answer? A resounding, "No!" ◦
Thursday, June 24, 2010
Wednesday, June 23, 2010
Bouncing Back: How South Korea Is Taking the World by Surprise
Published in Knowledge@Wharton
http://knowledge-stage.wharton.upenn.edu/article.cfm?articleid=2524&specialid=102
When Chung Un-Chan speaks of a nation once "paralyzed by anxiety and uncertainty," it's hard to imagine that the prime minister of South Korea is indeed referring to his own country. Exuding pride and confidence today, Korea -- as Chung is also quick to note -- is among the world's largest economies. It's also at the forefront of today's global economic recovery, making one of the strongest rebounds registered by any member of the Organisation of Economic Co-operation and Development (OECD). Growth bounced back in the third quarter of last year while this year, GDP is predicted to grow 5.8% followed by 4.7% in 2011, says the OECD. It's a far cry from the Korea of the 1950s and 1960s, which had one of the lowest per capita GDPs in the world.
But for many Koreans, it's been a journey "that carries deep emotions," Prime Minister Chung acknowledged in his keynote address at Wharton's Global Alumni Forum in late May. The primary focus of the forum -- held in the Korean capital Seoul and titled, "A Whole New World: Where Do We Go from Here?" -- was to take stock of the global economic recovery. But it also served as a poignant reminder of the host country's particularly remarkable resiliency: The last time a similar Wharton gathering was held in Seoul was 1999, as the country reeled from the Asian currency meltdown and was negotiating a humiliating bailout plan with the International Monetary Fund. Yet back then as today, Chung recalled, Korea "surprised the world" and recovered far faster than expected.
While the challenges Korea faces today might not be as formidable as they were some 10 years ago, the country can't stand still. "The Korea of yesterday isn't the one of today, or tomorrow," conceded Chung. In the months ahead, can Korea prove that -- as in the late 1990s -- it can come out of this current crisis stronger than before with an economy that's more shock-resistant than ever?
Tense Times
It won't be easy, for both new and old reasons. As the prime minister spoke, relations between South and North Korea were faltering yet again following the sinking in March of the South Korean naval ship Cheonan in the Korean peninsula, which killed 46 South Korean sailors. Though still denied by Pyongyang, an investigation found evidence that a North Korean submarine had fired a torpedo at the Cheonan. Under the stress and strain of the renewed military and political tension, a dark cloud hovers over both countries.
It's against this geopolitically charged backdrop that the conservative government of South Korea President Lee Myung Bak must keep Korea Inc. focused on sustaining the economic recovery. Severed relations with the North are unlikely to harm South Korea's recovery directly -- annual trade with the North accounts for only $286 million, or about 0.3%, of South Korea's GDP. And thus far, other economic fallout from the Cheonan incident has been minor: Since the investigation's findings were made public in May, the benchmark Kospi stock market index fell only slightly and the won began some seesawing against the U.S. dollar. But nerves could fray further if South Korea fails to get the international support it wants to reprimand the North. Indeed, the psychological importance of peaceful relations with the North can't be underestimated
Lee -- a former CEO of Hyundai Engineering & Construction and former mayor of Seoul -- started 2010 basking in international praise and admiration for his administration's swift response to the downturn. In November 2008 -- faster than many other governments -- Lee announced 14 trillion won ($11 billion) of spending and tax cuts as part of the country's stimulus plan to address unemployment fears and the staggering drop in export demand. Meanwhile, the Bank of Korea, the country's central bank, began a series of interest rate cuts, eventually bringing the base rate to a record-low 2%, where it remains today. With only one quarter of negative growth during the downturn (a 5.1% contraction in the last three months of 2008), such measures seem to be achieving what they needed to.
But, as panelists and presenters at the Wharton forum agreed, the current administration wouldn't have been able to achieve what it did had it not been for the painful reforms undertaken after the crisis in the 1990s. Up to then, Korea's development model relied precariously on huge amounts of short-term foreign borrowing, shockingly high corporate debt levels to fuel industrial growth, and far too cozy ties between government and local business aimed at keeping foreign investors at bay, according to Alex Park, managing director of Standard Chartered Bank First Bank in Seoul and one of the participants in a forum panel titled, "The Future of Finance." But then Korea Inc. unraveled. Starting with Daewoo Motor in 2000, dozens of other subsidiaries and divisions of the country's once powerful chaebol -- the industrial conglomerates involved in everything from shipbuilding to television manufacturing -- went bust.
Outlook: Sunnier
Contrast that to recent months. Having cleaned up their balance sheets -- and their governance -- the chaebol took advantage of government incentives and the tumbling won (which had lost 17% of its value against the U.S. dollar over the past year) to grab more overseas sales. Samsung Electronics almost doubled its operating profit in 2009 from 2008 to 10.9 trillion won, while profit for the year at LG Electronics reached a record 2.9 trillion won. At Hyundai Motor, 2009 profit also soared to 2.9 trillion won. Like other parts of Korea Inc., all three are upbeat about their 2010 prospects.
Korea's achievements haven't gone unnoticed. In mid-April, ratings agency Moody's Investors Service upgraded its sovereign rating to A1 from A2, ranking the country with China and Israel in terms of international creditworthiness, notes the latest country analysis published by the Economist Intelligence Unit (EIU). "The rating move returns South Korea to its position before the 1997-98 Asian financial crisis," says the report. Thanks to economic resilience, the government's well-timed measures, and the soundness of both the public finances and the private financial sector, "the rating upgrade also functions as an assurance that the persistent geopolitical risks posed by North Korea have not dampened growing economic optimism in South Korea."
But while support for the Lee administration at home might be relatively strong, it's not unquestioning. "Lee campaigned in 2008 saying he was going to run the country like a business," says Philip Nichols, Wharton professor of legal studies and business ethics and one of the moderators at the Seoul forum. After more than a decade under a center-left government, "some Koreans love [Lee's pro-business approach to governing the country]; others are put off. I tend to think he's a capable administrator." But it appears his foreign policies toward North Korea -- ending the previous government's conciliatory "Sunshine Policy" of economic cooperation -- have been even more divisive.
South Koreans used local elections in early June to show the president what they think of his hard-line policies severing ties with the North in the wake of the Cheonan sinking. Lee's Grand National Party (GNP) clinched only six out of 16 mayoral and gubernatorial races across the country, half the total of four years ago. The opposition Democratic Party said "the Lee government's arrogance and self-righteousness" are to blame for its party's dismal election results, widely considered a mid-term referendum for the president.
Labor Pains
It's the longer-term issues that could prove more vexing for Korea. One such issue having a far-reaching impact on national productivity and employment has to do with the country's low birthrate and aging population. At 48 million currently, Korea's population grew 0.5% on average between 2005 and 2009. The OECD predicts that it will fall by 0.02% in 2020. According to Statistics Korea, the national statistics office, Korean households without children and one-person households will exceed households with children in 2030. Among other things, that will severely strain public services, noted Kee Taig Jung, a professor of health services management at Kyung Hee University in Seoul and a participant in the forum's panel titled, "New Healthcare in an Ageing Society."
What's more, a declining workforce has important implications for a country that until now has largely relied on manufacturing as its economic engine. "Considering Korea's stage of economic development and its changing demographic structure, including the aging of the population, little is to be gained by continuing to follow a growth strategy relying on the expansion of inputs of capital and labor," said Kim Choong Soo, the Bank of Korea's new governor, in a speech at the forum.
Technological innovation is one way to produce more with less; shifting the economy's emphasis from manufacturing to services is another, say experts. That means Korea has a lot of work ahead. Only four of its 30 largest enterprises are part of the service industry and account for 58% of GDP, compared with 12 of the top 30 in the U.S. accounting for 80% of GDP, according to Richard Dobbs and Roland Villinger, two Seoul-based directors at McKinsey. What's more, the productivity (output per labor hour) of Korea's private sector services "is only 56% of manufacturing productivity, in stark contrast to other developed nations where the two are about the same," write Dobbs and Villinger in Korea 2020, a new book by the consulting firm.
To sustain GDP growth, the two McKinsey consultants say overall labor productivity will need to increase 26% more over the next two decades than over the previous two. The first step in addressing the imbalance, they advise, is for both business leaders and the government to increase the proportion of R&D budgets spent on services. The process could also require scrapping fiscal and financial policies that have favored manufacturing, a prospect that might not sit well with Korea's business community over the short term.
But not everyone agrees with Dobbs and Villinger. "I am not sure whether we can or we should start developing a services sector now," said Chelsoo Kim, an economics professor at Sookmyung Women's University in Seoul and a participant in "The Future of Finance" panel. "Korea's comparative advantage is in the manufacturing sector, not in the service sector. Although diversifying into services may be useful, I think Korea should try to concentrate on what [it] does best right now." He also pointed out that not only is Korea's macroeconomic house now in order, but its exporters are more diversified geographically than they have been in the past, "and hence less vulnerable to a particular country's downturn than before."
Home and Away
As Kim observed, there is more to the sustainability of Korea's economic recovery than internal reforms and politics. That much was made clear when the United Nations Development Program (UNDP) office in Seoul recently closed. Opened more than 40 years ago, the office was a reminder of Korea's impoverished past and its need for international aid to spur development. That changed in November when Korea was recognized as a full-fledged donor nation by the OECD Development Assistance Committee. As Chung noted in his forum keynote, the new status as a donor country is a source of pride for Koreans.
It also brings Korea to a crossroads, said Diana Robertson, Wharton professor of legal studies and business ethics and moderator of the forum panel titled, "New Economic Leadership of Asia." As the panel's participants said, Korea's hope is to take a long-overdue regional and international leadership role. According to them, Korea should become a sort of "honest broker" on the world stage, given its enviable growth trajectory and current size -- neither too large economically to pose a threat to China and advanced countries, nor too small to not wield clout or respect among developing countries.
That role is being cemented this year as it chairs the G20, the group of 20 major industrialized and developing nations, whose leaders will be convening in Seoul in November. Korea's chairmanship comes with mixed blessings, however, said Wharton finance professor Richard Herring in his introductory remarks as moderator of "The Future of Finance" panel. "With Korea as the first non-G7 country to host the G20, it's a more accurate reflection of today's economic balance of power. That's the good news. The bad news is that it will be a lot harder to reach agreements now that the group has expanded from seven to 20. But it's going to be an historic occasion."
It goes without saying that Korea will use its agenda-setting power as chair to get G20 countries to coordinate an orderly exit from their recent expansionary monetary and fiscal policies. But trade politics will be another big area on which Korea will focus G20 members' attention. "It doesn't surprise me that [Korea] wants to chair the summit. It plays to their strengths and gives them a sense of being able to show that they've made it," said Simon Evenett in an interview at the University of St. Gallen in Switzerland where he is professor of international trade and economic development. "Korea is known as a tough negotiator, and its pro-market openness underlies its reputation."
Last year, Evenett was part of a team at the Centre for Economic Policy Research, a London-based think tank, which launched the Global Trade Alert (GTA), a regularly updated database of state measures from around the world that can affect foreign commerce. Currently, there are 960 measures in the database, of which Evenett says 240 adversely affect Korea. Those measures are largely in the form of bailouts and state aid, but export taxes and restrictions as well as tariffs are among the others.
According to the GTA, since the first G20 crisis-related summit in 2008, its members -- despite their "no-protectionism" pledge -- imposed 316 of what it calls "beggar-thy-neighbor" policies. Some countries -- notably Korea -- have issued very few. In contrast, among the worst offending nations worldwide is China, Korea's biggest trading partner, accounting for 17% of all imports into Korea and 24% of all its exports.
"What is imperative is to find a new way forward. Without a sense of urgency, the G20 will lose its focus," said Evenett. Judging from previous summits, however, "don't be surprised if [the November summit] becomes a talking shop. But that won't be Korea's fault."
Korea also wants to manage expectations. History has taught veterans of Korea Inc. that celebrating its recent achievements too soon would be "dangerous," said James Joo-Jin Kim, executive chairman of Amkor Technology, a semiconductor outsourcer he founded in 1968, and the forum's co-chair. "We survived, we persevered and then we prospered," he said. "There's no question Korea is great. But everything is relative.... China and Japan are right next to us. We have to respect that." Korea also needs to "provide substance" in its newfound role in global leadership. As he put it, "This is only the beginning." ◦
http://knowledge-stage.wharton.upenn.edu/article.cfm?articleid=2524&specialid=102
When Chung Un-Chan speaks of a nation once "paralyzed by anxiety and uncertainty," it's hard to imagine that the prime minister of South Korea is indeed referring to his own country. Exuding pride and confidence today, Korea -- as Chung is also quick to note -- is among the world's largest economies. It's also at the forefront of today's global economic recovery, making one of the strongest rebounds registered by any member of the Organisation of Economic Co-operation and Development (OECD). Growth bounced back in the third quarter of last year while this year, GDP is predicted to grow 5.8% followed by 4.7% in 2011, says the OECD. It's a far cry from the Korea of the 1950s and 1960s, which had one of the lowest per capita GDPs in the world.
But for many Koreans, it's been a journey "that carries deep emotions," Prime Minister Chung acknowledged in his keynote address at Wharton's Global Alumni Forum in late May. The primary focus of the forum -- held in the Korean capital Seoul and titled, "A Whole New World: Where Do We Go from Here?" -- was to take stock of the global economic recovery. But it also served as a poignant reminder of the host country's particularly remarkable resiliency: The last time a similar Wharton gathering was held in Seoul was 1999, as the country reeled from the Asian currency meltdown and was negotiating a humiliating bailout plan with the International Monetary Fund. Yet back then as today, Chung recalled, Korea "surprised the world" and recovered far faster than expected.
While the challenges Korea faces today might not be as formidable as they were some 10 years ago, the country can't stand still. "The Korea of yesterday isn't the one of today, or tomorrow," conceded Chung. In the months ahead, can Korea prove that -- as in the late 1990s -- it can come out of this current crisis stronger than before with an economy that's more shock-resistant than ever?
Tense Times
It won't be easy, for both new and old reasons. As the prime minister spoke, relations between South and North Korea were faltering yet again following the sinking in March of the South Korean naval ship Cheonan in the Korean peninsula, which killed 46 South Korean sailors. Though still denied by Pyongyang, an investigation found evidence that a North Korean submarine had fired a torpedo at the Cheonan. Under the stress and strain of the renewed military and political tension, a dark cloud hovers over both countries.
It's against this geopolitically charged backdrop that the conservative government of South Korea President Lee Myung Bak must keep Korea Inc. focused on sustaining the economic recovery. Severed relations with the North are unlikely to harm South Korea's recovery directly -- annual trade with the North accounts for only $286 million, or about 0.3%, of South Korea's GDP. And thus far, other economic fallout from the Cheonan incident has been minor: Since the investigation's findings were made public in May, the benchmark Kospi stock market index fell only slightly and the won began some seesawing against the U.S. dollar. But nerves could fray further if South Korea fails to get the international support it wants to reprimand the North. Indeed, the psychological importance of peaceful relations with the North can't be underestimated
Lee -- a former CEO of Hyundai Engineering & Construction and former mayor of Seoul -- started 2010 basking in international praise and admiration for his administration's swift response to the downturn. In November 2008 -- faster than many other governments -- Lee announced 14 trillion won ($11 billion) of spending and tax cuts as part of the country's stimulus plan to address unemployment fears and the staggering drop in export demand. Meanwhile, the Bank of Korea, the country's central bank, began a series of interest rate cuts, eventually bringing the base rate to a record-low 2%, where it remains today. With only one quarter of negative growth during the downturn (a 5.1% contraction in the last three months of 2008), such measures seem to be achieving what they needed to.
But, as panelists and presenters at the Wharton forum agreed, the current administration wouldn't have been able to achieve what it did had it not been for the painful reforms undertaken after the crisis in the 1990s. Up to then, Korea's development model relied precariously on huge amounts of short-term foreign borrowing, shockingly high corporate debt levels to fuel industrial growth, and far too cozy ties between government and local business aimed at keeping foreign investors at bay, according to Alex Park, managing director of Standard Chartered Bank First Bank in Seoul and one of the participants in a forum panel titled, "The Future of Finance." But then Korea Inc. unraveled. Starting with Daewoo Motor in 2000, dozens of other subsidiaries and divisions of the country's once powerful chaebol -- the industrial conglomerates involved in everything from shipbuilding to television manufacturing -- went bust.
Outlook: Sunnier
Contrast that to recent months. Having cleaned up their balance sheets -- and their governance -- the chaebol took advantage of government incentives and the tumbling won (which had lost 17% of its value against the U.S. dollar over the past year) to grab more overseas sales. Samsung Electronics almost doubled its operating profit in 2009 from 2008 to 10.9 trillion won, while profit for the year at LG Electronics reached a record 2.9 trillion won. At Hyundai Motor, 2009 profit also soared to 2.9 trillion won. Like other parts of Korea Inc., all three are upbeat about their 2010 prospects.
Korea's achievements haven't gone unnoticed. In mid-April, ratings agency Moody's Investors Service upgraded its sovereign rating to A1 from A2, ranking the country with China and Israel in terms of international creditworthiness, notes the latest country analysis published by the Economist Intelligence Unit (EIU). "The rating move returns South Korea to its position before the 1997-98 Asian financial crisis," says the report. Thanks to economic resilience, the government's well-timed measures, and the soundness of both the public finances and the private financial sector, "the rating upgrade also functions as an assurance that the persistent geopolitical risks posed by North Korea have not dampened growing economic optimism in South Korea."
But while support for the Lee administration at home might be relatively strong, it's not unquestioning. "Lee campaigned in 2008 saying he was going to run the country like a business," says Philip Nichols, Wharton professor of legal studies and business ethics and one of the moderators at the Seoul forum. After more than a decade under a center-left government, "some Koreans love [Lee's pro-business approach to governing the country]; others are put off. I tend to think he's a capable administrator." But it appears his foreign policies toward North Korea -- ending the previous government's conciliatory "Sunshine Policy" of economic cooperation -- have been even more divisive.
South Koreans used local elections in early June to show the president what they think of his hard-line policies severing ties with the North in the wake of the Cheonan sinking. Lee's Grand National Party (GNP) clinched only six out of 16 mayoral and gubernatorial races across the country, half the total of four years ago. The opposition Democratic Party said "the Lee government's arrogance and self-righteousness" are to blame for its party's dismal election results, widely considered a mid-term referendum for the president.
Labor Pains
It's the longer-term issues that could prove more vexing for Korea. One such issue having a far-reaching impact on national productivity and employment has to do with the country's low birthrate and aging population. At 48 million currently, Korea's population grew 0.5% on average between 2005 and 2009. The OECD predicts that it will fall by 0.02% in 2020. According to Statistics Korea, the national statistics office, Korean households without children and one-person households will exceed households with children in 2030. Among other things, that will severely strain public services, noted Kee Taig Jung, a professor of health services management at Kyung Hee University in Seoul and a participant in the forum's panel titled, "New Healthcare in an Ageing Society."
What's more, a declining workforce has important implications for a country that until now has largely relied on manufacturing as its economic engine. "Considering Korea's stage of economic development and its changing demographic structure, including the aging of the population, little is to be gained by continuing to follow a growth strategy relying on the expansion of inputs of capital and labor," said Kim Choong Soo, the Bank of Korea's new governor, in a speech at the forum.
Technological innovation is one way to produce more with less; shifting the economy's emphasis from manufacturing to services is another, say experts. That means Korea has a lot of work ahead. Only four of its 30 largest enterprises are part of the service industry and account for 58% of GDP, compared with 12 of the top 30 in the U.S. accounting for 80% of GDP, according to Richard Dobbs and Roland Villinger, two Seoul-based directors at McKinsey. What's more, the productivity (output per labor hour) of Korea's private sector services "is only 56% of manufacturing productivity, in stark contrast to other developed nations where the two are about the same," write Dobbs and Villinger in Korea 2020, a new book by the consulting firm.
To sustain GDP growth, the two McKinsey consultants say overall labor productivity will need to increase 26% more over the next two decades than over the previous two. The first step in addressing the imbalance, they advise, is for both business leaders and the government to increase the proportion of R&D budgets spent on services. The process could also require scrapping fiscal and financial policies that have favored manufacturing, a prospect that might not sit well with Korea's business community over the short term.
But not everyone agrees with Dobbs and Villinger. "I am not sure whether we can or we should start developing a services sector now," said Chelsoo Kim, an economics professor at Sookmyung Women's University in Seoul and a participant in "The Future of Finance" panel. "Korea's comparative advantage is in the manufacturing sector, not in the service sector. Although diversifying into services may be useful, I think Korea should try to concentrate on what [it] does best right now." He also pointed out that not only is Korea's macroeconomic house now in order, but its exporters are more diversified geographically than they have been in the past, "and hence less vulnerable to a particular country's downturn than before."
Home and Away
As Kim observed, there is more to the sustainability of Korea's economic recovery than internal reforms and politics. That much was made clear when the United Nations Development Program (UNDP) office in Seoul recently closed. Opened more than 40 years ago, the office was a reminder of Korea's impoverished past and its need for international aid to spur development. That changed in November when Korea was recognized as a full-fledged donor nation by the OECD Development Assistance Committee. As Chung noted in his forum keynote, the new status as a donor country is a source of pride for Koreans.
It also brings Korea to a crossroads, said Diana Robertson, Wharton professor of legal studies and business ethics and moderator of the forum panel titled, "New Economic Leadership of Asia." As the panel's participants said, Korea's hope is to take a long-overdue regional and international leadership role. According to them, Korea should become a sort of "honest broker" on the world stage, given its enviable growth trajectory and current size -- neither too large economically to pose a threat to China and advanced countries, nor too small to not wield clout or respect among developing countries.
That role is being cemented this year as it chairs the G20, the group of 20 major industrialized and developing nations, whose leaders will be convening in Seoul in November. Korea's chairmanship comes with mixed blessings, however, said Wharton finance professor Richard Herring in his introductory remarks as moderator of "The Future of Finance" panel. "With Korea as the first non-G7 country to host the G20, it's a more accurate reflection of today's economic balance of power. That's the good news. The bad news is that it will be a lot harder to reach agreements now that the group has expanded from seven to 20. But it's going to be an historic occasion."
It goes without saying that Korea will use its agenda-setting power as chair to get G20 countries to coordinate an orderly exit from their recent expansionary monetary and fiscal policies. But trade politics will be another big area on which Korea will focus G20 members' attention. "It doesn't surprise me that [Korea] wants to chair the summit. It plays to their strengths and gives them a sense of being able to show that they've made it," said Simon Evenett in an interview at the University of St. Gallen in Switzerland where he is professor of international trade and economic development. "Korea is known as a tough negotiator, and its pro-market openness underlies its reputation."
Last year, Evenett was part of a team at the Centre for Economic Policy Research, a London-based think tank, which launched the Global Trade Alert (GTA), a regularly updated database of state measures from around the world that can affect foreign commerce. Currently, there are 960 measures in the database, of which Evenett says 240 adversely affect Korea. Those measures are largely in the form of bailouts and state aid, but export taxes and restrictions as well as tariffs are among the others.
According to the GTA, since the first G20 crisis-related summit in 2008, its members -- despite their "no-protectionism" pledge -- imposed 316 of what it calls "beggar-thy-neighbor" policies. Some countries -- notably Korea -- have issued very few. In contrast, among the worst offending nations worldwide is China, Korea's biggest trading partner, accounting for 17% of all imports into Korea and 24% of all its exports.
"What is imperative is to find a new way forward. Without a sense of urgency, the G20 will lose its focus," said Evenett. Judging from previous summits, however, "don't be surprised if [the November summit] becomes a talking shop. But that won't be Korea's fault."
Korea also wants to manage expectations. History has taught veterans of Korea Inc. that celebrating its recent achievements too soon would be "dangerous," said James Joo-Jin Kim, executive chairman of Amkor Technology, a semiconductor outsourcer he founded in 1968, and the forum's co-chair. "We survived, we persevered and then we prospered," he said. "There's no question Korea is great. But everything is relative.... China and Japan are right next to us. We have to respect that." Korea also needs to "provide substance" in its newfound role in global leadership. As he put it, "This is only the beginning." ◦
Nation Branding: Shaking Off the Korea Discount
Published in Knowledge@Wharton
http://knowledge-stage.wharton.upenn.edu/article.cfm?articleid=2527&specialid=102
What does France have that South Korea doesn't? The Eiffel Tower, for one thing. It's the type of national icon that public relations and marketing experts in the East Asian country dream of having. But this is a nation more known for angry street demonstrations and the nerve-rattling conflicts with North Korea than any countrywide icon. While Korea is unlikely to whip up its equivalent of an Eiffel Tower -- or a Sphinx or Golden Gate Bridge -- any time soon, it is trying hard to raise the country's profile around the world. It's a goal that could take years to achieve, as Yoon Dae Euh, the inaugural head of the country's Presidential Council on Nation Branding (PCNB), conceded at May's Wharton Global Alumni Forum in Seoul.
But the presidential council is undaunted. With an annual branding budget of around 100 billion won ($81 million) to share among various regional and national bodies, the coordinating agency has recruited 47 advisers since last year, including eight government ministers, academics and private-sector executives, and intends to succeed despite a similar initiative having failed to gain traction a few years earlier. The mission now: To think big, with projects ranging from new campaigns to woo tourists to stepping up the work of Korea's version of the Peace Corps, Euh said during a speech about the PCNB at the forum.
Many observers have said that if anyone can get a project like this up and running, it's Euh. A professor of international business and finance, he was widely credited with raising the profile of Korea University while serving as its president between 2003 and 2006. Even so, Euh acknowledged that Korea has its work cut out, noting that few people outside Korea associate the country with being a dynamic emerging-market powerhouse and world-class innovator. A recent Nation Brands Index compiled by Anhold-GFK Roper, a branding consultancy and research firm, scored 50 individual countries based on various branding-related factors, including cultural appeal and demand for their exports. Korea came in 39th, behind Mexico (26th), India (27th), China (28th) and Egypt (31st).
What the World Sees
Euh said there's a sense of urgency in the country to change survey results such as those. One reason is emotional: The greater sense of pride that the 48 million Koreans should feel about their country's economic transformation since civil war tore North and South Korea apart in the 1950s and left them in extreme poverty. Now, not only is Korea among the largest economies in the world, the country outflanks many other countries in terms of innovation and technological know-how, ranking fourth among 138 countries in the number of patent applications filed with the World Intellectual Property Organization and fifth in the export of high-tech products among 55 countries, according to the Samsung Economic Research Institute, a think tank.
But there's also an economic motivation behind the PCNB. As Euh maintained in his speech, countries with a positive global brand image are more likely than others to attract foreign direct investment. Moreover, companies from countries with positive branding are treated favorably in international business transactions and need to invest less in marketing their products abroad.
In that vein, a survey by the PCNB found that consumers place different values on goods and services from particular countries. In the survey, consumers in Japan, Germany and the United States marked down the value of identical products 30% or more when they were told they came from Korea. That is a call to action for Euh. "Now it's time of brand competitiveness," he said. "It's highly crucial for individuals, corporations, and cities and nations as well."
The good news is that the country's leading conglomerates have managed to make progress on their own, initially competing globally as low-cost producers of electronic and industrial goods and eventually moving up the value chain, Euh noted. In the latest annual Best Global Brands ranking produced by consultancy Interbrand, Samsung jumped from 21st place to 19th place, while Hyundai moved up three places to 69th place among several hundred brands. Interbrand cited bold global product development efforts at both companies for their improved status.
The benefits of company and country branding "is a two-way flow," wrote Christopher Graves, CEO of Ogilvy Public Relations Worldwide, in Korea 2020, a collection of essays compiled earlier this year by McKinsey & Company. "A well-regarded country can help the perception of a product; likewise, a product considered to be of high craftsmanship and design can give a country's branding a boost." Graves reckoned that the key for Korea's national branding success is to focus on design. "Great design has the power to elevate an entire corporation; sustained over a long period across many companies, it can lift an entire nation in the world's esteem," he wrote, citing the role of design in the rise of Japan's economy.
The key for Korea, he asserted, is that it "must do more to connect its product design with the country itself," he asserted. Think of Italy and its textile and design companies that make a garment with a "Made in Italy" label to connote high quality and exclusivity.
The Medium Is the Message
Meanwhile, Euh also said that branding isn't just about advertising and promotional campaigns. Providing overseas economic development advice is another. Given that Korea was an official development assistance (ODA) recipient until the late 1990s and now is an ODA donor, Euh said Korea has a big responsibility to "share our know-how and provide customized, sophisticated consulting" to developing countries whose economies are today what Korea's once was. Korea currently has 83 projects investing in 13 countries, ranging from Vietnam to Iraq.
Against that backdrop, Euh commended the state-run Korea International Cooperation Agency (KOICA). Set up in 1990, KOICA is currently the world's third-largest overseas volunteer program, after the U.S.'s Peace Corps and Japanese Overseas Cooperation Volunteers. Every year, KOICA sends 1,000 new volunteers to 43 countries.
Despite his enthusiasm for the work being done by organizations like KOICA, Euh is careful about not letting the country get carried away in hype, proving to be a level-headed critic of which branding messages will and will not go down with the international public. For example, while Korea has put itself at the forefront of reducing greenhouse gas emissions -- being among the countries that have volunteered to cut emissions 30% by 2020 from 2005 levels -- Euh is also aware that a "Green Korea" slogan wouldn't chime with its image as a nation known for its recent industrialization. At the same time, Euh told local newspaper JoongAng Daily that promotional brochures with traditional Korean masks also don't convey the best image for Korea and might "make foreigners wonder if the country is still a developing nation."But he said, even with careful vetting, a recent tourism slogan, "Korea Sparkling," had limited impact.
Now Euh is reaching the end of his two-year term as head of the PCNB. But he's certainly not one to walk away from a challenge. He's currently awaiting approval of his recent appointment as chairman of KB Financial, Korea's largest bank which, following a recent governance scandal among its senior ranks, could benefit from Euh's branding wisdom. ◦
http://knowledge-stage.wharton.upenn.edu/article.cfm?articleid=2527&specialid=102
What does France have that South Korea doesn't? The Eiffel Tower, for one thing. It's the type of national icon that public relations and marketing experts in the East Asian country dream of having. But this is a nation more known for angry street demonstrations and the nerve-rattling conflicts with North Korea than any countrywide icon. While Korea is unlikely to whip up its equivalent of an Eiffel Tower -- or a Sphinx or Golden Gate Bridge -- any time soon, it is trying hard to raise the country's profile around the world. It's a goal that could take years to achieve, as Yoon Dae Euh, the inaugural head of the country's Presidential Council on Nation Branding (PCNB), conceded at May's Wharton Global Alumni Forum in Seoul.
But the presidential council is undaunted. With an annual branding budget of around 100 billion won ($81 million) to share among various regional and national bodies, the coordinating agency has recruited 47 advisers since last year, including eight government ministers, academics and private-sector executives, and intends to succeed despite a similar initiative having failed to gain traction a few years earlier. The mission now: To think big, with projects ranging from new campaigns to woo tourists to stepping up the work of Korea's version of the Peace Corps, Euh said during a speech about the PCNB at the forum.
Many observers have said that if anyone can get a project like this up and running, it's Euh. A professor of international business and finance, he was widely credited with raising the profile of Korea University while serving as its president between 2003 and 2006. Even so, Euh acknowledged that Korea has its work cut out, noting that few people outside Korea associate the country with being a dynamic emerging-market powerhouse and world-class innovator. A recent Nation Brands Index compiled by Anhold-GFK Roper, a branding consultancy and research firm, scored 50 individual countries based on various branding-related factors, including cultural appeal and demand for their exports. Korea came in 39th, behind Mexico (26th), India (27th), China (28th) and Egypt (31st).
What the World Sees
Euh said there's a sense of urgency in the country to change survey results such as those. One reason is emotional: The greater sense of pride that the 48 million Koreans should feel about their country's economic transformation since civil war tore North and South Korea apart in the 1950s and left them in extreme poverty. Now, not only is Korea among the largest economies in the world, the country outflanks many other countries in terms of innovation and technological know-how, ranking fourth among 138 countries in the number of patent applications filed with the World Intellectual Property Organization and fifth in the export of high-tech products among 55 countries, according to the Samsung Economic Research Institute, a think tank.
But there's also an economic motivation behind the PCNB. As Euh maintained in his speech, countries with a positive global brand image are more likely than others to attract foreign direct investment. Moreover, companies from countries with positive branding are treated favorably in international business transactions and need to invest less in marketing their products abroad.
In that vein, a survey by the PCNB found that consumers place different values on goods and services from particular countries. In the survey, consumers in Japan, Germany and the United States marked down the value of identical products 30% or more when they were told they came from Korea. That is a call to action for Euh. "Now it's time of brand competitiveness," he said. "It's highly crucial for individuals, corporations, and cities and nations as well."
The good news is that the country's leading conglomerates have managed to make progress on their own, initially competing globally as low-cost producers of electronic and industrial goods and eventually moving up the value chain, Euh noted. In the latest annual Best Global Brands ranking produced by consultancy Interbrand, Samsung jumped from 21st place to 19th place, while Hyundai moved up three places to 69th place among several hundred brands. Interbrand cited bold global product development efforts at both companies for their improved status.
The benefits of company and country branding "is a two-way flow," wrote Christopher Graves, CEO of Ogilvy Public Relations Worldwide, in Korea 2020, a collection of essays compiled earlier this year by McKinsey & Company. "A well-regarded country can help the perception of a product; likewise, a product considered to be of high craftsmanship and design can give a country's branding a boost." Graves reckoned that the key for Korea's national branding success is to focus on design. "Great design has the power to elevate an entire corporation; sustained over a long period across many companies, it can lift an entire nation in the world's esteem," he wrote, citing the role of design in the rise of Japan's economy.
The key for Korea, he asserted, is that it "must do more to connect its product design with the country itself," he asserted. Think of Italy and its textile and design companies that make a garment with a "Made in Italy" label to connote high quality and exclusivity.
The Medium Is the Message
Meanwhile, Euh also said that branding isn't just about advertising and promotional campaigns. Providing overseas economic development advice is another. Given that Korea was an official development assistance (ODA) recipient until the late 1990s and now is an ODA donor, Euh said Korea has a big responsibility to "share our know-how and provide customized, sophisticated consulting" to developing countries whose economies are today what Korea's once was. Korea currently has 83 projects investing in 13 countries, ranging from Vietnam to Iraq.
Against that backdrop, Euh commended the state-run Korea International Cooperation Agency (KOICA). Set up in 1990, KOICA is currently the world's third-largest overseas volunteer program, after the U.S.'s Peace Corps and Japanese Overseas Cooperation Volunteers. Every year, KOICA sends 1,000 new volunteers to 43 countries.
Despite his enthusiasm for the work being done by organizations like KOICA, Euh is careful about not letting the country get carried away in hype, proving to be a level-headed critic of which branding messages will and will not go down with the international public. For example, while Korea has put itself at the forefront of reducing greenhouse gas emissions -- being among the countries that have volunteered to cut emissions 30% by 2020 from 2005 levels -- Euh is also aware that a "Green Korea" slogan wouldn't chime with its image as a nation known for its recent industrialization. At the same time, Euh told local newspaper JoongAng Daily that promotional brochures with traditional Korean masks also don't convey the best image for Korea and might "make foreigners wonder if the country is still a developing nation."But he said, even with careful vetting, a recent tourism slogan, "Korea Sparkling," had limited impact.
Now Euh is reaching the end of his two-year term as head of the PCNB. But he's certainly not one to walk away from a challenge. He's currently awaiting approval of his recent appointment as chairman of KB Financial, Korea's largest bank which, following a recent governance scandal among its senior ranks, could benefit from Euh's branding wisdom. ◦
Sunday, June 20, 2010
Return to Daegu
After two years away, I’m back in Daegu for a month teaching international business to KNU (http://www2.knu.ac.kr/programs/visiting.jsp) undergrads. Please follow these adventures at: http://www.knu08.blogspot.com/
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Sunday, June 06, 2010
B2C Companies in Korea with URLs
Bakeries
Paris Baguette http://www.paris.co.kr/
Tous Les Jous http://www.tlj.co.kr/
Dunkin Donuts http://www.dunkindonuts.co.kr/
Crown Bakery http://www.crown.co.kr/
Banks
Korea Bank (KB) http://www.kbstar.com/
Woori Bank http://www.wooribank.com/
Shinhan Bank http://www.shinhan.com/
Hana Bank http://www.hanabank.com/
KoreaExchange Bank (KEB) http://www.keb.co.kr/
Book Stores
Kyobo http://www.kyobobook.co.kr/index.laf
Youngpoong http://www.ypbooks.co.kr/
Bandi & Lunis http://www.bandinlunis.com/
Libro http://www.libro.co.kr/
Yes 24 (online only) http://www.yes24.com/
Interpark (online only) http://www.book.interpark.com/
Aladdin (online only) http://www.aladdin.co.kr/
Coffee Shops
Starbucks Korea http://www.istarbucks.co.kr/
Ediya http://www.ediya.com/
Rosebud http://www.irosebud.co.kr/
Hollys http://www.hollys.co.kr/
Coffee Bean http://www.coffeebeankorea.com/
Angel-in-Us http://www.angelinus.co.kr/
Tom n Toms http://tomntoms.com/
Pascucci http://www.caffe-pascucci.co.kr/
Twosome Place http://www.twosomeplace.co.kr/
Caffe Bene http://www.caffebene.co.kr/main/
Seven Monkeys http://www.sevenmonkeys.co.kr/
Convenience Stores
Family Mart http://familymart.co.kr/
GS25 http://www.gsretail.com/GS25/index.aspx/
7-Eleven / Buy the Way http://www.7-eleven.co.kr/
MiniStop www.ministop.co.kr/
Department Stores
Lotte http://www.lotteshopping.com/
Shinsegae http://department.shinsegae.com/
Hyundai http://www.ehyundai.com/portal/index.jsp
AK Plaza http://www.akplaza.com/
Galleria http://www.galleria.co.kr/
Discount Stores
Emart http://emart.shinsegae.com/
Homeplus http://corporate.homeplus.co.kr/
Lotte Mart www.lottemart.com/
Hanaro Mart http://mart.nonghyup.com/
Family Restaurants
Bennigan's http://www.bennigans.co.kr/
Outback http://www.outback.co.kr/
TGIF http://www.tgif.co.kr/
VIPS http://www.ivips.co.kr/
Sizzler http://www.sizzler.co.kr/
Fast Food
Lotteria http://www.lotteria.com/
McDonald's http://www.mcdonalds.co.kr/
KFC http://www.kfckorea.com/
Burger King http://www.burgerking.co.kr/
Popeyes http://www.popeyes.co.kr/
Gas Stations
SK EnClean http://www.enclean.com/
GS-Caltex http://www.gscaltex.co.kr/
Hyundai Oilbank http://www.oilbank.co.kr/
S-Oil http://www.s-oil.com/
Movie Theaters
CGV (CJ) http://www.cgv.co.kr/
Lotte Cinema http://www.lottecinema.co.kr/
Primuscinema http://www.primuscinema.com/
Cinus http://www.cinus.co.kr/
Megabox http://www.megabox.co.kr/
Pizza
Mr. Pizza http://www.mrpizza.co.kr/
Pizza Hut http://www.pizzahut.co.kr/
Domino's http://www.dominos.co.kr/
Wireless Service Providers
SK http://www.sktelecom.com/
KT http://www.kt.com/
LG http://www.lgtelecom.com/ ◦
Paris Baguette http://www.paris.co.kr/
Tous Les Jous http://www.tlj.co.kr/
Dunkin Donuts http://www.dunkindonuts.co.kr/
Crown Bakery http://www.crown.co.kr/
Banks
Korea Bank (KB) http://www.kbstar.com/
Woori Bank http://www.wooribank.com/
Shinhan Bank http://www.shinhan.com/
Hana Bank http://www.hanabank.com/
KoreaExchange Bank (KEB) http://www.keb.co.kr/
Book Stores
Kyobo http://www.kyobobook.co.kr/index.laf
Youngpoong http://www.ypbooks.co.kr/
Bandi & Lunis http://www.bandinlunis.com/
Libro http://www.libro.co.kr/
Yes 24 (online only) http://www.yes24.com/
Interpark (online only) http://www.book.interpark.com/
Aladdin (online only) http://www.aladdin.co.kr/
Coffee Shops
Starbucks Korea http://www.istarbucks.co.kr/
Ediya http://www.ediya.com/
Rosebud http://www.irosebud.co.kr/
Hollys http://www.hollys.co.kr/
Coffee Bean http://www.coffeebeankorea.com/
Angel-in-Us http://www.angelinus.co.kr/
Tom n Toms http://tomntoms.com/
Pascucci http://www.caffe-pascucci.co.kr/
Twosome Place http://www.twosomeplace.co.kr/
Caffe Bene http://www.caffebene.co.kr/main/
Seven Monkeys http://www.sevenmonkeys.co.kr/
Convenience Stores
Family Mart http://familymart.co.kr/
GS25 http://www.gsretail.com/GS25/index.aspx/
7-Eleven / Buy the Way http://www.7-eleven.co.kr/
MiniStop www.ministop.co.kr/
Department Stores
Lotte http://www.lotteshopping.com/
Shinsegae http://department.shinsegae.com/
Hyundai http://www.ehyundai.com/portal/index.jsp
AK Plaza http://www.akplaza.com/
Galleria http://www.galleria.co.kr/
Discount Stores
Emart http://emart.shinsegae.com/
Homeplus http://corporate.homeplus.co.kr/
Lotte Mart www.lottemart.com/
Hanaro Mart http://mart.nonghyup.com/
Family Restaurants
Bennigan's http://www.bennigans.co.kr/
Outback http://www.outback.co.kr/
TGIF http://www.tgif.co.kr/
VIPS http://www.ivips.co.kr/
Sizzler http://www.sizzler.co.kr/
Fast Food
Lotteria http://www.lotteria.com/
McDonald's http://www.mcdonalds.co.kr/
KFC http://www.kfckorea.com/
Burger King http://www.burgerking.co.kr/
Popeyes http://www.popeyes.co.kr/
Gas Stations
SK EnClean http://www.enclean.com/
GS-Caltex http://www.gscaltex.co.kr/
Hyundai Oilbank http://www.oilbank.co.kr/
S-Oil http://www.s-oil.com/
Movie Theaters
CGV (CJ) http://www.cgv.co.kr/
Lotte Cinema http://www.lottecinema.co.kr/
Primuscinema http://www.primuscinema.com/
Cinus http://www.cinus.co.kr/
Megabox http://www.megabox.co.kr/
Pizza
Mr. Pizza http://www.mrpizza.co.kr/
Pizza Hut http://www.pizzahut.co.kr/
Domino's http://www.dominos.co.kr/
Wireless Service Providers
SK http://www.sktelecom.com/
KT http://www.kt.com/
LG http://www.lgtelecom.com/ ◦
Friday, May 28, 2010
Wednesday, April 21, 2010
Return of South Korea's industrial giants
A tycoon comes back as the saviour of Samsung Electronics, leader of South Korea’s remarkable business success. But where’s the crisis?
LEE KUN-HEE is a man of few words. So when the 68-year-old decided to come out of court-induced purgatory this month to retake the helm of Samsung Electronics, now the world’s biggest technology company, it was appropriate that he chose Twitter, a keep-it-brief social-networking site, to spread the news.
Mr Lee’s message was not just for employees of Samsung Electronics, by far the biggest part of his empire, but also those of the other 64 firms within the conglomerate that he controls. It was delivered with the sort of attention-grabbing hyperbole that any tweeter would be proud of: “It’s a real crisis now. First-class global companies are collapsing. No one knows what will become of Samsung. Most of Samsung’s flagship businesses and products will become obsolete within ten years. We must begin anew. We must only look forward.”
It did not quite have the pithiness of Mr Lee’s rhetoric in 1993 when he said Samsung was a second-rate company and that its employees should “change everything except your wife and children.” But his words had the same urgent ring of truth about them.
How can that be? It is a question that could be asked by anyone who has recently turned on a flat-screen television, bought a mobile phone, stored masses of data on a flash memory or watched Chelsea’s footballers in shirts sporting Samsung’s name. Far from being a disaster in the making, Samsung Electronics has become one of the world’s strongest brands, known for sleek design, razor-sharp technology and good value.
Think of anything with a screen, from a few centimetres square on a mobile phone, to a laptop, a wide liquid-crystal display or a giant 3D television, and Samsung Electronics will be one of the top two firms in the world making it—or at least the memory chips inside it (see chart). The company’s global market shares are staggering: more than 40% of the flash memory used in sophisticated electronics like the Apple iPhone, almost one in five of the world’s mobile phones and one in six of its television sets. It even makes screens for Sony’s TVs.
Having invested aggressively in new products in 2008, Samsung Electronics sailed through the global financial crisis, almost doubling its operating profit in 2009. This year analysts expect it to generate record profits of over $10 billion. Sales are forecast to be about $130 billion, which is likely to confirm its lead over America’s Hewlett-Packard as the world’s biggest technology company by revenue. Not to be outdone, other parts of the Samsung group have notched up successes. The construction division recently completed the tallest building in the world in Dubai and Samsung Heavy Industries is flush with shipbuilding orders.
In a way that General Motors can only have dreamed of, what has been good for Samsung has been good for South Korea. The group’s products account for about 20% of the country’s GDP, making it huge even by the standards of an economy top-heavy with big firms. When the won tumbled in 2008, raising fleeting fears of a currency crisis, exporting champions like Samsung, Hyundai and LG quickly took advantage, betting that their customers would be willing to buy newer, better models if the price was right.
South Korea’s conglomerates were also well diversified globally—only one-tenth of the country’s exports go to America. That meant sales lost in America were partly made up for by those gained in fast-growing emerging markets like China. Thanks to generous promises of government stimulus, South Korea, one of the rich world’s most export-dependent countries, pulled off the surprising feat of surviving the worst slump in global trade since the second world war with only a fleeting dip into recession.
For that, South Koreans give much of the credit to their industrial conglomerates, or chaebol as they are known, and the rich, inscrutable families who control them and live like royalty in South Korea. Yet Mr Lee’s comeback causes nervous speculation. If Samsung really does face a crisis, what does that mean for South Korea? If Mr Lee believes he is the only person who can avert disaster, what does that say about the business acumen of his potential successors? And if he can walk back into the corner office without even having board approval, can it really be argued that the country is progressing to Western-style standards of corporate governance? Business people have watched, with a mixture of suppressed glee and dread, former role-models such as Toyota and General Motors struggle with huge financial and technical problems. Could this be the fate that Mr Lee fears for his firm?
Get out of jail free
These are pertinent questions for Korea Inc, the business model that has so recently undergone a remarkable rehabilitation. Just over a decade ago, when the South Korean economy was reeling from its near collapse in the Asian financial crisis of 1997-98, it was the chaebol that were widely blamed by the public, the centre-left government of the time and the IMF.
The extent of the mismanagement was shocking. In the 1960s and 1970s, under the dictatorial regime of Park Chung-hee, the chaebol soaked up cheap government financing and relied on official protection from foreign competition. Loosely, the models were the zaibatsu conglomerates that had helped turned Japan into an imperial—and militaristic—power before the second world war.
The chaebol, some of which were started by war racketeers, had the same vast ambitions, albeit for industrial conquest—and they had public money to back them. Samsung expanded from sugar and wool into electrical goods, chemicals and engineering. Hyundai’s founder, Chung Ju-yung, started building roads and then decided to build the cars to drive on them. But many chaebol overburdened themselves with debt as they tried to move up the technological ladder in the 1980s. As they borrowed lavishly to buy capital equipment, South Korea’s current-account deficit soared. Some thought the chaebol had become so big the government could not let them fail. They were spectacularly wrong.
The wheels of industryThe conglomerates failed in droves. The collapse of Daewoo in 1999 was followed by the bankruptcy of more than half of the then top 30 conglomerates. Four of the country’s five carmakers (even Samsung had ventured into the market) went bust. South Koreans, many of whom had flocked to hand over their gold jewellery in a patriotic gesture to help pay off the foreign debt, were appalled at the level of government and business collusion that came to light.
Under two consecutive left-of-centre governments, many of the chaebol bosses—some now being run by the children of their founders—were prosecuted. Suspended sentences were handed out to the boss of SK in 2003, the former chairman of Doosan group in 2006, and the owner of Hanwa group in 2007. But this was justice for the rich—quite different from justice for the rest. Chung Mong-koo, chairman of Hyundai Motor (which also owns Kia, the country’s second-biggest carmaker) was convicted of embezzlement in 2006. But his prison term was reduced to community service and a $1 billion donation to charity because of his economic importance to the republic. Then in 2008 Mr Lee was convicted on tax-evasion charges, but also spared prison after paying a fine.
Partly chastened, both business and government have embarked on reform. Balance-sheets have improved, as has corporate governance, increasing the rights of minority shareholders and the responsibilities of company directors. Since then, some—though by no means all—of the cross-shareholdings used to disguise the weakness of subsidiaries and protect them from hostile takeovers have been rooted out and replaced with more transparent holding-company structures.
A friend in the Blue House
The reputations of the chaebol—especially in the eyes of South Koreans—recovered further during the 2008-09 global slump. So much so that when you ask experts in Seoul how their conglomerates fared during the crisis, some ask: what crisis? It was not just Samsung Electronics that sparkled. Hyundai increased market share in America every month last year, as its small, well-equipped cars with long warranties benefited disproportionately from the cash-for-clunkers programme.
For the first time in many years the chaebol have a political wind behind them. Lee Myung-bak, who became president in 2008, is a former chief executive from within the Hyundai extended family of firms. In December he pardoned Mr Lee, freeing the way for his return to Samsung. The same month he championed a successful bid by a chaebol-heavy consortium under the aegis of the Korean Electric Power Company to provide nuclear power to Abu Dhabi, pulling the rug from under industry leaders in France and Japan. This year, his government is pushing to relax holding-company laws that would make it easier for the chaebol to own financial firms. “The business community has not seen a political environment this accommodative in the past decade,” CLSA, a broker, said in a recent report.
Japan looks on aghast as the chaebol catch up with more of its large firms. “Of all their competitors on the global stage, the Japanese fear the South Koreans most,” writes Mark Anderson, author of Strategic News Service, a technology newsletter. Some Japanese industrialists acknowledge this publicly. “Korea is much more full of vitality than Japan,” Osamu Suzuki, head of Suzuki Motor, lamented in a recent talk to foreign journalists in Tokyo. “Japan is coasting.”
All of which makes Mr Lee’s strident warning, as the head of South Korea’s most successful company, more puzzling. The charitable view is that it may have been just a rhetorical device to soften up opponents to his rehabilitation—and to the eventual transfer of power to his son, Lee Jae-yong, Samsung Electronics’ chief operating officer. But it may also reflect deeper fears that the days of relying on manufacturing as a growth strategy, for all its technical sophistication, are numbered. The most obvious cause for concern is China. The acquisition on March 28th of Volvo by Geely, a Chinese carmaker, is the latest example of low-cost Chinese producers’ determination to build global brands.
In computer chips, Samsung Electronics is comfortably ahead of China for now. But the skills needed in that business are described by one Samsung expert as like running a “digital sashimi shop”—the trick is to get products so swiftly to market that they do not lose their freshness. There is no inherent reason why Chinese firms cannot eventually catch up. What is more, as Mr Anderson points out, China is more open to imports and foreign direct investment than South Korea, which helps China’s quest for intellectual property.
An even bigger threat comes from America. Late last year Apple finally got permission from South Korea’s telecoms authorities to waive a rule prohibiting the domestic sale of iPhones. Demand for the iPhone has since exploded, leaving Samsung and its domestic rival LG (which together have sold seven out of ten phones in South Korea), looking uncharacteristically leaden. Smart-phones accounted for just 1% of the market, but Apple has been selling some 4,000 iPhones a day, making South Korea one of the gadget’s hottest markets. Even the finance ministry has launched an iPhone application—the Glossary of Current Affairs in the Economy—to unexpected popular appeal.
For Samsung and LG this problem is magnified at the global level, and not just against Apple but also against firms like Google and Research in Motion, maker of the BlackBerry. For all its success in mobile phones, Samsung is an also-ran in the global smart-phone market. The South Korean company has rushed to remedy that with its own smart-phone platform, Bada, and by producing mobile phones that use Google’s low-cost Android operating system. As a result, Samsung hopes to sell more smart-phones in America than any other firm this year.
To win, however, Samsung needs more than sleek hardware. It is also outgunned by the iPhone’s 140,000 applications, which means it needs more creative input into its products. That will mean encouraging a less hierarchical, more inventive, corporate culture. The fluid ecosystem surrounding mobile technology may mean Samsung will need to engage more openly in partnerships with other firms, as it already has with DreamWorks Animation, creator of films such as “Shrek”, to help in the launch of 3D television. But such team efforts are not naturally in the DNA of a company that likes to keep its suppliers in the corporate family.
To their credit, Samsung executives did not appear to be complacent, even before Mr Lee’s call to action. They do not want to abandon what Samsung does best—making cutting-edge hardware—just because China is on the warpath or to chase Apple. They greatly value the Samsung brand, which has been painstakingly built through good design over many years.
But they do speak of change, albeit in an evolutionary way. They intend to offer affordable smart-phones to the masses, not just to the top of the market. To improve content, they are concentrating on hiring software engineers rather than hardware experts. And to help stimulate ideas they have offered flexible hours to their notoriously hard-working employees, as well as hiring more young people and women. Nor have they stopped benchmarking against their competitors.
But there is still the bottom line to worry about. “Samsung Electronics may be the largest technology company in the world by sales, but it’s far from global number one by profit,” Lee Keon-hyok of the Samsung Economic Research Institute acknowledges. Profit margins leave something to be desired. In the quarter ending on December 31st, Samsung Electronics reported operating-profit margins of 9%. Apple’s were 36%. Moreover, the South Korean firm can hardly dispute that its market-share gains—especially against Japanese rivals such as Sony—were helped by a cheap won. But in a country where being number one is almost an obsession, these are elements that are likely to make Samsung strive harder.
No leeway
Arguably the most difficult challenge Samsung Electronics faces is internal, and as in most things at the company that ultimately comes back to the patriarch. As Steve Jobs has proved at Apple, nothing beats having a visionary leader—and Mr Lee is one of those. It was his decision, back in 1993, to concentrate the sprawling empire on certain world-class technologies, like chips, mobile phones and display screens. He is credited with instilling the mantra of first-class product design among his staff.
But the manner of Mr Lee’s return may raise as many problems as it solves. When he stepped down in 1998, the hope was it would usher in a reform in Samsung Electronics’ corporate governance so that investors outside his sphere of influence—about half are foreigners—would have a clearer view of the way the company was run. His son was given different managerial posts, which groomed him for the top job better than many other “chaebol princes”. A murky Strategic Planning Office that sat atop the Samsung family of companies and allocated resources was disbanded. No one doubted that Mr Lee continued to pull strings from behind the scenes. But the first traces of Western-style corporate governance were apparent.
His return, without a board meeting to approve it, appears to have put that process into reverse. Already there is speculation that he will revive the “control tower” system of group-wide oversight. His comeback may make it even less likely that Samsung will embrace a more transparent holding-company structure as, say, LG has.
Most troubling, argues Jang Hasung, dean of Korea University Business School, is that the “emperor-management” approach suggests Mr Lee is not confident enough in the company’s numerous other executives around the world—including his son—to lead the company into the future. This problem is true of the chaebol in general; succession issues loom everywhere. What’s more, it appears to ignore the lesson so recently exposed by Toyota that family ownership can be a huge weakness as well as a strength.
“His decision to come back gives the impression that he’s the only one who can fix whatever crisis it is he’s talking about,” Mr Jang says. With so much of South Korea’s future at stake, maybe it is the next generation of leadership that Mr Lee should be tweeting about.
http://www.economist.com/world/asia/displaystory.cfm?story_id=15816702
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