Ryan DAlessandro, Tango Celestin

BUS 200

Professor Zimmerman

11/17/2021

South Korea Country Report

Geography

            The Republic of Korea, colloquially known as South Korea, is located in East Asia. Making up the Southern part of the Korean Peninsula, South Korea is still theoretically at war with its neighbor, North Korea, as the conflict ended with a ceasefire rather than an armistice. Bordering the Yellow Sea to the West and the Sea of Japan to the East, the population of South Korea is approximately fifty million. Nearly half of the country’s population lives in the capital of Seoul, and it is the largest city in the country (CIA).

(AsiaSociety)

• The capital city of South Korea is Seoul and is located in the country’s Northwest (AsiaSociety).
• A demilitarized zone separates South Korea from North Korea on the 38^th Parallel (AsiaSociety).
• South Korea is a very mountainous country with small valleys between its mountains. The coasts are surrounded by plains (AsiaSociety).
• The T’aebaek Mountain Range runs North-South along the Eastern coastline of the country and continues upwards into North Korea. It is South Korea’s most important mountain chain (AsiaSociety).
• The Sobaek Mountains are another prominent mountain range that runs through the country in an s-shape from North to South (AsiaSociety).
• While South Korea contains many mountains, none of these are very high. The T’abebek range reaches an apex of 1,708 meters at Mount Sorak. The Sobaek mountains meet their apex at 1,915 meters in the form of Mount Chiri. The country’s highest mountain is an extinct volcano named Mount Halla on an offshore island named Cheju Island. It reaches 1,950 meters above sea level (AsiaSociety).
• The climate of South Korea is made up of a hot and humid summer and a cold but dry winter (AsiaSociety).

In examining South Korean environmental policies, it has committed to cut its carbon emissions by forty percent between now and 2030.Its current policies are not in line with meeting the goals which are associated with the Paris Climate Accords (ClimateAction)

• South Korea makes use of resource-intensive industries and has so far made little progress towards implementing sustainable technologies (ClimateAction).
• While the country is currently heavily dependent on coal for electricity generation, it is currently making plans to shift towards a greater percentage of nuclear and renewable energy (ClimateAction).
• South Korean industries are dependent on high degrees of petrol, energy, and rare earth minerals which contribute to polluting the global environment and contributing to climate change (ClimateAction).

(ClimateAction)

• Public support for climate change planning is lower in South Korea than in other wealthy OECD countries (ClimateAction).
• South Korea’s climate policies are characterized as being less significant than those which have already been adopted by OECD countries with similar levels of wealth and development (ClimateAction).

Ultimately, South Korea’s geographic position and the infrastructure built by the government have contributed to using its geography as an advantage for trade (Hsu et al., 460-463).

• South Korea features seventeen major ports, all near industrial hubs, which are primarily used for exports within the context of the country’s export-driven economy (Adnavem)
• South Korea’s Port of Busan, shown in the figure below, located at the mouth of the Naktong River, is the fifth busiest port for container ships in the world and the largest and most significant transshipment port in all of Northeast Asia (Adnavem).

(Adnavem).

• South Korea’s location near other export-oriented economies like Japan and China allows for it to rapidly export or import inputs so that they may be processed and re-exported. This geographical position is advantageous in relation to the global economy (Hsu et al., 460-463).

Brief History and Recent Important Events

            In examining the modern history of the Republic of Korea, it was significantly shaped by the events of the Korean War as well as the import-substitution-based industrialization process which South Korea followed during the 1970s and 1980s to develop its economy (Cha).

• After being under Japanese rule during WWII, the Korean Peninsula was partitioned into Northern and Southern zones after the War. The Soviet Union administered the North and the United States administered the South (Cha).
• The Korean War broke out in 1950. Lasting until 1953, it led to the permanent separation of the formerly united Korean into the Democratic People’s Republic of Korea (North Korea) and the Republic of Korea (South Korea). While no more active fighting is taking place, the War is not yet over as only a ceasefire, rather than an actual peace agreement, has been agreed to by the previously fighting parties (Cha).
• South Korea experienced extreme poverty in the wake of the Korean War. It is now one of the wealthiest countries in the OECD. The figure below highlights how South Korea’s economy grew so significantly in the post-war period from a point of abject poverty prior to the War (Cha).
• After the Korean War, South Korean policymakers set upon stimulating economic growth by promoting indigenous industrial firms, this followed the example set by many other post- World War II developing countries. The government selected organizations in specific industries and gave them privileges to buy foreign currencies and to borrow funds from banks at privileged rates. It also establishedtariff barriers and imposed a prohibition on manufacturing imports, this was done in hopes that the protection would give domestic firms a chance to improve productivity through a learning-by-doing approach and importing advanced technologies. Under the policy, known as import-substitution industrialization (ISI), entrepreneurs seemed more concerned in exploiting and maintaining favors by bribing bureaucrats and politicians. This waslabelled as directly unproductive profit-seeking activities (DUP), it caused efficiency to stagger and living standards to deteriorate, providing a background to the fall of the First Republic in April 1960 (The Economic History of Korea).
• General Park Chung Hee overthrew the short-lived Second Republic in May 1961, making a shift to a strategy of stimulating growth through export promotion (EP), however, ISI was not altogether abandoned. Under EP, policymakers gave a variety of types of favors to low interest loans, being the most important, to exporting firms according to their export performance. Qualification for special treatment was measurable and impartial, the room for DUP became increasingly smaller. Another marked advantage of EP over ISI was that EP accelerated productivity advances by positioning firms under the discipline of export markets and by increasing the exposure they had with the developed world: efficiency growth was significantly faster in export industries than in the rest of the economy. The decade that followed the shift to EP, per capita output doubled, and this led to the birth of an industrialized South Korea.From 1960/62 to 1973/75 the share of agriculture in GDP fell from 45 percent to 25 percent, while the share of manufacturing rose from 9 percent to 27 percent. (The Economic History of South Korea).

(Cha)

• Korea succeeded in industrializing by using the same patterns used by the other Asian Tiger countries. With this involving decoupling the economy of South Korea from the global economy so as to protect infant industries and reduce imports, it turned South Korea into the modern and export-oriented economy that South Korea embodies today (Cha).
• South Korea continues to be threatened by North Korea via a combination of recurrent threats and North Korea’s development of a weapons of mass destruction program (Cha).
• Because South Korea is a very close ally of the United States, close to 30,000 American military personnel are forward-based in South Korea at any moment in time (Cha).

Cultural Factors

            In examining cultural factors of relevance to doing business in South Korea, it is critical to understand that South Korea, like many other Asian countries, has a high context culture. Unlike the United States and its low context culture, in which direct communication is privileged, a high context culture involves a significant reliance on non-verbal cues, body language, and other factors which a cultural outsider might not understand. This means that doing business in South Korea requires a profound understanding of its culture (Merkin, 199-202).

• South Korea is a highly homogenous society made up almost entirely of individuals of Korean descent (CommisCEO).
• The country’s population is of approximately 51 million individuals (CommisCEO).
• The main language of South Korea is Korean. English is regularly spoken as a second language within the business community and amongst the university-educated. Japanese is also widely spoken as a second language in the country (CommisCEO).
• South Korea offers religious freedom. Confucianism and Buddhism are the predominant religions in the country. Various Protestant versions of Christianity are also well represented within the country (CommisCEO).
• The family unit is the central unit of South Korean life and family life is not integrated into the business context (CommisCEO).
• Education is highlyvalued in contemporary South Korea, and youth are expected to study for extended periods of time when compared to American students (CommisCEO).
• In spite of formal protections regarding gender equality, women suffer from high levels of systemic discrimination within North Korean society, and especially in the labor market (CommisCEO).
• Face, or the notion of pride, is very important in South Korean culture. Causing an individual to lose face can be viewed as a very significant affront in South Korea (CommisCEO).
• Conservative dress is expected in a business context and formality is the norm in business encounters (CommisCEO).
• The exchange of business cards is a significant ritual in South Korea and the receipt of a business card should be treated with significant respect (CommisCEO).

Obstacles to Ethical Decision-Making in South Korea

            In examining obstacles to ethical decision-making present in South Korea, a hidden culture of corruption exists in the country. Two of the last five South Korean Presidents, Park Geun-Hye and Lee Myung-Bak are currently imprisoned for accepting bribes from major companies and for abusing their power in relation to granting favorable treatments to certain firms. While South Korean governmental corruption rates are much lower than those found in China, they are significantly higher than those found in Japan. While it is unknown to what degree this type of corruption exists throughout the South Korea bureaucracy, studies indicate that the payment of bribes by large and small firms alike to regulatory authorities is commonplace (Andrews et al., 600-60). In this respect, foreigners doing business in South Korea may be especially vulnerable to being asked to pay these types of bribes in spite of South Korea’s ongoing crackdown on corruption in government.

            Additionally, South Korean culture is one in which personal connections are regularly used, in the context of widespread nepotism, to lead individuals to progress in business. When an individual lacks personal connections germane to advancing their business interests, they will commonly pay a facilitation payment, which is essentially a bribe, so that another party will help them advance their career. With one in ten South Korean reporting that they have made such a payment to advance their careers during their lifetimes, this is indicative of a business situation in which foreigners, who lack personal connections within the South Korean business sector, may be pressured to pay such facilitation payments. With the payment of such fees violating the American Foreign Corrupt Practices Act, the normalization of these payments in the South Korean business sphere is certain to cause ethical challenges and dilemmas to foreigners seeking to do business in South Korea (Transparency International).

            In turn, public procurement represents one of the sectors of the South Korean economy in which corruption is the most endemic. With the different levels of government typically allocating contracts to political supporters, those who have paid facilitation payments or provided other benefits to officials and who have directly paid bribes to officials, foreign firms have faced significant difficulties in terms of doing business with the South Korean government. While part of this results from the government’s prioritization of partnering with South Korean businesses, corruption also plays a very significant role in terms of determining who wins government contracts (GAN). Firms seeking to do business with the South Korean government might thus experience significant pressures to make political contributions or provide other illegal benefits to elected officials.

            Ultimately, the literature suggests that South Korea has been most successful in terms of minimizing rates of high-level corruption such as those associated with the two former Presidents discussed above. This said, South Korea has largely failed in terms of controlling or limiting lower-level corruption amongst government officials and in the business sphere more broadly. This brings about a context in which South Korea is only making concrete efforts to stamp out the most visible forms of corruption in government and within its economy (Choi, 303-305). In the end, this brings about a situation in which foreigners may not face challenges to ethical decision-making when interacting with the government or with large firms but in which they are likely to face requests for bribes and other types of facilitation payments when engaging in smaller scale economic activities. With the payment of any such bribes forbidden by the American Foreign Corrupt Practices Act, foreigners doing business in South Korea may face ethical dilemmas surrounding paying these bribes as they may fear that they will not be able to establish their businesses in the country if they do not pay them.

Political Systems

            The South Korean structure of government is a highly-centralized republican democracy made up of a legislative, executive, and judicial branch. The President of South Korea is the head of state and head of government. The Prime-Minister presides over the legislative branch and acts in a role akin to that of an American Vice-President. The current President of South Korea is Jae-In Moon, and he has held power since May of 2017. Policymaking is heavily centralized and while local governments are semi-autonomous, the country’s central government holds an immense degree of power over all facets of life (CIA).

• As with the American system, checks and balances between the branches of government are built into the South Korean system. As an example, members of the judicial branch are appointed by both the legislature and executive to ensure that no single branch of government is capable of holding despotic power over the others (CIA).
• South Korean elections for the Presidency are held every five years and the President is elected by a simple majority popular vote. The last presidential election was in May of 2017 and the next election is scheduled for March of 2022 (CIA).
• The South Korean legislature is unicameral and made up of 300 seats. 253 members are directly elected via single-seat constituencies while 47 are elected through proportional representation. All members of the legislature serve a four-year term (CIA).

Social Systems

The South Korean social system is premised on individual responsibility being mixed with collective government-funded schemes in areas like pensions and healthcare. With South Korea having only emerged from significant poverty in the late 1980s and early 1990s, the development of its social systems is still ongoing. While some programs exist so as to protect the poorest and most vulnerable of South Koreans, these tend to exist on smaller scales than the programs which prevail in Western democratic countries with more developed welfare states (Kim, 75-77).

• The Korean pension system is earnings-based and has a progressive formula. Benefits begin to be paid at age 62 as long as an individual has made at least ten years of contributions. Additionally, only approximately 20% of South Koreans receive payments from the program. Other South Koreans may receive private pensions from their employers. Those who are dependent on the public pension system tend to live in relative poverty because of the relatively low payouts which are associated with it (Kim, 76-77).
• Even though South Korea has a public healthcare system, all users must pay fees when obtaining healthcare of filling prescription drugs. As the figure below illustrates, South Korea’s healthcare system has shifted from being non-existent to being universal over a period of twelve years between 1977 and 1989. The gradual implementation of mandatory health insurance for different types of firms has led to universal health coverage in South Korea. While patients may still have to pay user fees when receiving care, these fees are relatively affordable when compared to those which exist in the United States (Drum).

(Drum)

• South Korea’s main welfare program is known as the Basic Livelihood Security Program. It covers approximate 3% of all Koreans and pays a monthly wage that is below the poverty line. Strict eligibility rules mean that many South Koreans that would require these payments are not eligible for them. With the South Korean culture of work stigmatizing poverty and dependence on government, there is little political will to improve the conditions which are associated with this welfare program of last resort (Gao et al., 113-115).
• South Korea’s unemployment benefits system is known as EIS (Employment Insurance System) EIS comprises three basic programs: Unemployment Benefits, Employment Stabilization Program, and Job Skill Development Program. (Chau and Kwan).
• Unemployment Benefits provide cash benefits for unemployed workers in order tostabilize their livelihood and to aid in seeking early reemployment. Unemployment benefits consist of the Job-seeking Allowance and the Employment Promotion Benefits. The Employment Stabilization Program (ESP) seeks to enhance employment security in the course of structural changes in industries and technologies. ESP consists of four different schemes: Employment Adjustment Assistance, Regional Employment Stimulation Grant, Employment Facilitation Assistance and Labor Market Information and Job Placement Services. The Job Skill Development Program (JSDP) aims at promoting the competitiveness of enterprise, developing the quality of the work force, and providing incentives to individual firms to invest in vocational training. JSDP comprises three different schemes: Assistance to Employers, Assistance to Employees and Assistance for Training the Unemployed (Chau and Kwan).
• Child allowances meant to promote the national birthrate are available for the parents of children aged zero to six. These subsidies help parents cover the basic necessities associated with having and rearing a child (Korea, 2021).
• Because of the industrialization of the Korean economy and the need to maintain a robust agricultural sector, South Korea provides subsidies to those who operate farms and who live in rural areas so as to encourage the maintenance of a domestic agricultural sector and reduce the country’s reliance on food imports (Korea, 2021).
• South Korea spends less than 8% of its GDP on welfare state spending which is far less than the OECD average (Korea, 2021).

Legal Systems

            Turning to South Korea’s legal systems, it is a civil law system that flows from the Constitution of 1949. Korea has an independent judiciary with three tiers. Article 103 of the Constitution of 1987 reformed the South Korean legal system to ensure the independence of the judicial branch government (SCOK).

• Unlike the adversarial system used in the United States, South Korea uses an inquisitorial system. Such a system is one in which the judge acts as a finder-of-fact and plays a much more active role in terms of dictating how the case is tried. While both parties to a case make use of counsel, the judge has the power to question witnesses, direct the scope of the court’s investigation and take other actions which would not be possible in an adversarial system like the United States’ (SCOK).
• The South Korean legal system is generally viewed as one that is fair and impartial in term of the decisions it puts forth (Korea).
• The South Korean minimum wage, which is currently set at an hourly rate of 8,590 Won per hour, has been in place since 1982 and has been recurrently increased since its inauguration (Korea).

• The Equal Employment Opportunity Act prohibits gender discrimination against women in the workplace. IT also imposes mandatory employment quotas forcing firms to employ individuals suffering from disabilities at a certain percentage of their total workforce composition (Korea).
• All workers are protected by an industrial accident compensation insurance scheme which is associated with work-related accidents, deaths and/or diseases. Individuals receiving aid through these programs do not have to pay user fees when making use of the South Korean healthcare system (Korea).
• All workers are entitled to partially paid parental leave. Females are entitled to ninety days of maternity leave prior to and subsequent to giving birth. Male employees can request paternity leave both in relation to the child’s birth and its rearing (Korea).
• The Ministry of Employment and Labor oversees the Korean labor market and represents the primary structure for handling disputes between workers and firms as well as between firms and the government. Oversight of employment laws is rather strictly enforced (Lexology).

• All businesses with more than thirty employees must establish a Labor Management Council that meets with the business’ owners on a quarterly basis to discuss and resolve issues of concern to employees (Lexology).
• Written employment contracts are explicitly required in Korea as non-respect of the standards of the Labor Standards Act could result into a fine of up to five million Won (Lexology).
• Foreign workers entering the country for business activities of less than 90 days require a C-3 visa. Individuals receiving such visas cannot be remunerated by South Korean companies (Lexology).
• Individuals who are part of multinational corporations and who are transferred to South Korea must obtain a D-7 visa. The obtention of such a visa does not allow for the spouse of the foreign worker to obtain employment in South Korea without applying for a visa of their own (Lexology).
• South Korean firms seeking to recruit permanent foreign employees must demonstrate the exceptional skills of such an employee to the Ministry of Labor. The obtention of such a visa must occur before a South Korean firm hires a foreign worker (Lexology).
• Intellectual Property protection in South Korea is handled via the Unfair Competition Prevention and Trade Secret Protection Act. It is oriented towards protecting trade secrets and confidential business information. It prohibits the obtention of trade secrets by unfair or illegal means, the obtention of trade secrets that a given firm knows were obtained unfairly or the utilization or disclosure of trade secrets that a given person or firm knows were obtained unfairly. These rules apply to both South Korean corporations as well as to their activities with foreign partners (Lexology).
• The South Korean government takes significant efforts to promote FDI. The Foreign Investment Promotion Act is designed to attract foreign investment. It provides tax reductions; cash grants and industrial site supports for firms engaging in FDI in South Korea (Lexology)
• South Korea is a signatory to numerous bilateral investment agreements, including one with the United States, and is also a member of the World Trade Organization (Lexology)
• South Korea recognizes the jurisdiction of both the International Court of Arbitration of the International Chamber of Commerce and the International Center for the Settlement of Investment Disputes as it pertains to the resolutions of disputes involving FDI (Lexology).
• South Korea mostly restricts FDI in the specific areas of national defense, public administration, education, energy, and the media (Lexology).
• Registration of all FDI takes place through the Foreign Investment Promotion Act and the Foreign Exchange Transaction Act. A minimum investment of 100 million Won or the acquisition of 10% or more of the voting shares of a South Korean publicly-traded firm is needed to be permitted to engage in FDI within the country (Lexology).
• In terms of tariffs and non-tariff barriers, South Korea has implemented a 10% value-added tax on all imports. Additionally, a tax rate of between 10% and 20% is levied upon imported luxury items and durable consumer goods. Additionally, and as shown in the figure below, South Korea targets certain sectors with additional tariffs. Tariffs are especially important in terms of grains, specifically rice, prepared foods, and other foods. These are meant to protect South Korea’s fragile agricultural system. Other tariffs are relatively small in nature and not widespread (Ramstad)

(Ramstad)

Ultimately and in assessing how South Korea’s political, social, and legal systems affect foreign business, the South Korean climate appears to be very positive at the current time. With South Korea having abandoned protectionism since it has achieved OECD status, its market is open to FDI in nearly all sectors and South Korea very much appears to enforce intellectual property rights in an effective manner. Moreover, and with South Korea significantly incentivizing foreign direct investment, it is clear that the country is attempting to build a business environment conducive to attracting high levels of foreign investment. With South Korea only maintaining meaningful tariffs in the agricultural sectors, it does not show a strong commitment to protectionism. Instead, and with South Korea being an American ally and a member of the WTO, its commitment to free and fair international trade is made quite clear. These reasons, alongside the other components of the country’s political, social, and legal systems, combined to make it a strong and appropriate venue for foreign investment.

Economics

            The economy of Korea is advanced and is premised on the use of modern technologies so as to develop and produce goods for export. One of the Asian Tiger countries, South Korea’s economic development took place from the 1960s through the 1990s and involved a significant degree of state control over the economy. While South Korea was one of the poorest countries in the world in 1960, it has grown tremendously since then to now have a GDP of over one trillion dollars (CIA).

• South Korean GDP for the year 2020 was of $1646.74 U.S. billion. As shown in the figure below, South Korea’s GDP rose significantly and grew by nearly 50% between 2012 and 2018. Furthermore, it has been in decline since 2018 because of the emergence of alternative exporters of Korean staples like cars, electronics and semi-conductors and due to the COVID-19 Pandemic.

South Korean GDP per capita is approximately $31,500 USD. This means that South Korea ranks as one of the higher income OECD countries. Quality of life in South Korea is thus relatively high in nature (TradingEconomics).

• In terms of income distribution, as measured by the GINI Index, South Korea displays a very low rate of inequality. Its Gini coefficient of .034, as applied to after-tax income, is comparable to that of most Western capitalist democracies (WorldBank). Two important sources of inequality exist in South Korean society. First, younger generations do not have access to the high paying jobs of their ancestors and a significant age-based income gap exists in the country. Second, older Koreans tend to live in poverty, if they do not have adequate savings, because of the very meager nature of the South Korean pension system (Kim, 75-77).
• The South Korean unemployment rate was 2.8% in July of 2021, the last time it was publicly measured and published. In terms of trends, the South Korean unemployment rate increased significantly over the course of the COVID-19 Pandemic, reaching a peak of 5.5% in January of 2021. It has been in decline since then and this latest value reflects the positive trend occurring in relation to employment in South Korea (TradingEconomics).
• The currency value of the South Korean won is currently equal to 0.096 Japanese Yen or 0.00084 United States dollars as shown in the Figure below. The trend associated with the value of the won is increasing, especially in relation to the Japanese Yen, and is posing a significant risk to South Korean exports because of the manner by which it is making South Korea’s exports more expensive to purchase in the international free market (TheEconomist).

(Morningstar)

• In terms of examining government spending versus revenue, the country has a significant history of maintaining budget surpluses. This aid, a surplus value of 0.6% of GDP in 2019 transformed itself into a deficit of -2.1% of GDP in 2020 and the World Bank forecasts that this level will reach -2.6% in 2021 This is associated with a broader trend in which the COVID-19 Pandemic has challenged and disrupted the global economy. South Korea has promulgated various stimulus policies so as to keep inflation and unemployment low. The need for these measures has led to this increase in deficit spending in contemporary South Korea (Santander).
• As it pertains to government debt, South Korea has historically amassed a rather small national debt, amounting to approximately 42% of GDP. Shown in the figure below, the South Korean national debt has grown significantly since the beginning of the COVID-19 Pandemic.

(Santander)

With the South Korean government engaging in historically unprecedented levels of stimulus spending, the period between 2019 and 2020 has seen the largest increase in South Korea’s debt to GDP ratio in the country’s history. Forecasts suggest that this debt is likely to continue growing in the short term because of the economic difficulties associated with the Pandemic and the potential of a global recession associated with it (Santander).

• As shown in the figure below, South Korea’s current accounts balance has been positive since April of 2020. The current value of 9,261,400 is part of a broader trend that has seen South Korea’s current accounts rebound since suffering early in the Pandemic.

• (CEIC)

The continued growth of the current accounts balance is likely to occur because of the degree to which economic growth and international trade dipped so significantly over the course of the Pandemic. It is thus expected that future growth will lead to increases in current accounts (CEIC).

• Examining South Korea’s FDI inflows, the value for the year 2020 is approximately $20.75 US billion dollars. As shown in the figure below, this is part of a short-term decrease in FDI inflows that has been occurring since the beginning of the COVID-19 Pandemic

(CEIC)

In examining this trend, South Korea FDI inflows have been largely on the ascent since 1996 save for a period of decrease between 2000 and 2004. Since 1996, FDI inflows have grown by a factor of seven. Similarly, these have grown by a factor of approximately 50% between 2015 and 2020. The growth in South Korea’s FDI inflows thus appears to be relatively linear and in line with the pro-FDI policies that have been implemented in the country (CEIC).

• In terms of infrastructure, South Korea offers infrastructure which is in line with that of the richest OECD nations. For 2018, South Korean infrastructure was ranked as the 6^th best in the world and was ranked as the 8^th best in the world in 2017 (MordorIntelligennce). The government promotes infrastructure spending and has committed to spending an average of eight trillion Won per year on infrastructure improvement for the years 2020-2023. Support for private infrastructure projects is also part of South Korea’s post-COVID recovery plan, and the government is working to launch $14.7 US billion dollars’ worth of private-sector infrastructure projects in 2020 alone. (MordorIntelligence)
• 95.1% of South Koreans use the Internet and the country has the world’s highest average internet connection speed. Since the United Nation’s ICT Development Index launch, South Korea has consistently come in first in terms of internet accessibility and speed. Free governmentally-sponsored wi-fi is available in public spaces throughout the country and internet availability is nearly universal in South Korea (MordorIntelligence)
• Moving to examine South Korea’s most important exports, the figure below shows that South Korea’s primary imports are technological and industrial. The five main categories of South Korean exports are semiconductors, cars, petrochemicals, auto parts as well as displays and sensors (Yonhap).

With Korea having an export-driven economy, foreign trade represents approximately 75% of South Korea’s GDP. This implies that any disruption in foreign demand for South Korean exports is likely to be highly damaging to the South Korean economy (Yonhap).

• Turning to South Korea’s most important imports, the figure below shows that crude oil is one of the most significant and important imports engaged in by South Korea.

(Asialink)

While South Korea imports a wide variety of goods, with imports making up 33% of GDP, the nature of its imported goods varies immensely. Aside from South Korea’s significant dependence upon foreign oil, there is no clear and dominant area in which South Korea’s domestic economy fails to adequately produce enough goods for the domestic economy save for in the area of crude oil (Asialink).

• South Korea has a positive trade balance and consistently runs a surplus. With exports making up 75% of GDP and imports only making up approximately 33% of GDP, South Korea’s trade surplus for 2020 was of $45 billion USD. As shown in the figure below, South Korea has mostly maintained a positive trade balance since1980.

(Yonhap).

The country’s commitment to maintaining a trade surplus began during the period when it made use of import-substitution industrialization and has continued into the current day as the country’s comparative advantages in so many areas of production allow for it to cheaply produce goods for export and thus maintain a positive trade balance that is in line with the country’s commitment to achieving prosperity through an export-driven economy (Yonhap)

Economic Outlook

Shifting to an assessment of the near-term economic outlook and an assessment of the overall business climate, South Korea’s economy is currently facing some significant challenges mirroring those faced by other developed world countries which are suffering due to the disruption brought about by COVID-19.

• The COVID-19 Pandemic has posed a significant threat to Korean exports. These have decreased by nearly 15% between 2020 and 2021. With South Korea representing an export-driven economy, a combination of the troubles associated with COVID and the rise in the value of the South Korean currency, the Won, are challenging South Korean exports. With this having the potential to provoke a recession should it continue; South Korea is attempting to lower the value of its currency and engage in domestic stimulus via infrastructure spending to rehabilitate the health of its economy (TheEconomist).

Ultimately, South Korea’s long-term economic outlook is strong because of the manner by which the country has historically been able to simultaneously maintain such a positive balance of trade, draw in such a significant quantity of FDI and display such success in developing the country’s economy; the short-term outlook is bleaker. Given that South Korea is facing a rising currency that is harming its exports all the while the entire world remains embroiled in a financial crisis engendered by the COVID-19 Pandemic, South Korea is likely to face difficulties over the coming years. For foreign investors however, this likely represents an advantage because the barriers to entry associated with doing business in South Korea are likely to drop due to the government’s prioritization of continued high levels of FDI and exports. Even though the South Korean economy’s short-term outlook is somewhat pessimistic, the country’s strong fundamentals create a situation in which the medium to long-term outlook is highly-positive. Based on the combination of all of these factors, FDI or other forms of investment in South Korea are justifiable and warranted on the basis of this analysis.

Doing Business in South Korea

            Doing business in South Korea offers many opportunities because of the manner by which the country seeks to draw in foreign direct investment within its export-oriented economy. The country is currently experiencing an unprecedented drop in exports due to disruptions brought about by the COVID-19 Pandemic. This is lowering the barriers to entry which are associated with investing in the South Korean market. This is thus providing opportunities for doing business in South Korea in a manner that were more expensive before the Pandemic (Cohen &Rappeport).

• Post-COVID economic recovery in South Korea will present opportunities for FDI with lower barriers to entry when compared to those which existed prior to the Pandemic (Cohen &Rappeport).
• The economic fundamental as well as the government investments taking place in South Korea are indicative of the potential for a strong recovery (Cohen &Rappeport).
• Significant degrees of infrastructural investments being subsidized by the central government will spur on continued growth on the basis of Keynesian principles (Cohen &Rappeport).
• Ultimately, the unique circumstances associated with the economic fallout from the COVID Pandemic are largely responsible for the attractive business opportunities which are available to foreign investors in South Korea today (Cohen &Rappeport).

Works Cited

Adnavem. “Korea.”  N.D. Web. https://adnavem.com/world/eastern-asia/korea-republic-of/ports

Andrews, Tim G, et al. “Business Corruption in the Asia Pacific Region: Recapitulation and Prospects.” Asia Pacific Business Review 25.4 (2019): 600-07. Print.

Asialink. (2019). Korea’s imports.   Retrieved from https://asialinkbusiness.com.au/republic-of-korea/getting-started-in-korea/koreas-imports?doNothing=1

AsiaSociety. “The Geography of the Koreas ”  2020. Web. November 12 2021. https://asiasociety.org/education/geography-koreas

Cha, Myung Soo. “The Economic History of Korea.” Economic History N.D. Web.

Chau, Mr, and Pak Kwan. Unemployment-Related Benefit Systems in South Korea. 2000.

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