International Marketing — South Korea Country Study
The primordial question at the basis of this study revolves around the attractiveness of South Korea to American investors. Otherwise put, is this country able to determine the American investor to launch business operations in this global part? In order to answer the posed question, a series of analyses will be conducted. Some of these will refer to the general context, whilst others will detail specific issues.
The country is located in the eastern part of Asia; enjoys a temperate climate and owns less than 20% arable land. South Korea is characterized by a tormented historic past, which explains well the differences emerged between the two regions of the Korean Peninsula. The total population of the country exceeds 48 million, and their life expectancy at birth is of almost 79 years. The interactions with the South Koreans are generally formal and follow protocols, nevertheless based on social communications; traces of gender segregation can still be observed.
From an economic standpoint, South Korea is in all instances superior to the global averages. Despite the fact that the United States of America registers superior values in terms of total and per capita GDP, the East Asian country registers superior values in terms of GDP growth rate. South Korea’s three top trading partners are China, Japan and the United States. In its international commerce relationship with the U.S., South Korea has managed to maintain a positive trade balance.
Foreign investors are continually attracted to the country both as it reveals abilities to multiply the investments, as well as due to the incentives offered by the federal authorities. One such incentive refers to the massive investments in the development of a strong infrastructure.
The contemporaneous era is characterized by numerous elements, two of the most outstanding ones being the growing forces of globalization, and the rapid pace of development. Globalization manages to remove barriers between countries and makes it as such easier for economic, cultural or political values to transcend from one global region to the next. The technological era allows the individual or the organization to more efficiency gather the information they require. This aspect is of the utmost importance when considering a foreign country as a potential location for one’s future business operations. Considering that an American organization looks at South Korea as to a potential host for their business endeavors, it is required for them to be aware of certain elements that characterize the country officially known as Republic of Korea.
3. Brief History of South Korea
The history of South Korea is best characterized by turmoil. The Korean peninsula had historically been tormented by desires for power from both the natives, as well as the foreigners. In the first century before our era, the isthmus was divided between three kingdoms. In the year 668 however, one of the dynasties, Silla, managed to unite the three courts. Despite common invasions from the Moguls or the Manchus, the new formation was independently run by successive Korean dynasties until 1910, when it was occupied by Japan.
The Japanese occupants ruled the island in a brutal way, which ended however with the competition of World War II. The Korean peninsula was then broken into two parts. The northern part was granted to the Soviet Union and the southern part was placed under the supervision of the United States (Gonzales and Sherer, 2004).
Similar to the case of Germany, South and North Korea were subjected to strong influences of the west and the east, with the south managing to become a well developed country, whereas the north suffering the demise of the soviets and paying the price of economic and social collapse. Today for instance, South Korea is the 14th largest country in terms of gross domestic product; North Korea is featured on the 96th position; the list contains 266 states and was completed by the Central Intelligence Agency. The differences and the separation between the north and south regions were also exacerbated by the occurrence of the Cold War, an ideological battle between the United States and the Soviet Union, which placed additional challenges in the unification, desired by the populations.
After the Cold War, South Korea continued its diplomatic efforts to secure the unification with North Korea. In 2000 even, South Korean President Kim Dae-Jung became the recipient of the Nobel Prize for Peace (Nobel Prize, 2009). Diplomatic efforts are also sustained with the aim of improving the relations with Japan, but some disputes still arise in terms of land division. The most relevant example in this sense is offered by the Liancourt Rocks, a number of small islands located to the east of South Korea, and to which both countries claim sovereignty (Global Security, 2009). Given this situation, it would be advisable for the American investor to not open plants in these islands, as they reveal increased levels of political stability.
As it own name states, South Korea is located in the southern half of the Korean peninsula, situated in the eastern part of Asia; it borders the Sea of Japan and the Yellow Sea. Its total area is of 98,480 square kilometers, with the majority of 98,190 square kilometers being land and the remaining 290 square kilometers being waters. The climate is a temperate one, rains being heavier in summer than in winter. The land is represented mostly by hills and mountains and a few coastal plains in the western and southern parts of the country. The natural resources encountered in this region refer primarily to coal, graphite, lead, tungsten, as well as significant potential for hydropower. Less that 20% of the entire national land is used for agricultural activities (Geography About, 2009).
The geographic characteristics of South Korea tell the American individual that the country is easily reachable by sea, that it has the potential to support the creation of alternative sources of energy and that agricultural investments would retrieve low levels of returns.
At the census conducted in July 2009, South Korea had a population of 48,508,972 individuals, of a median age of 37.3. Their life expectancy at birth is of 78.72 years, and the population grows at an annual rate of 0.26%. The birth and death rates are of 8.93, respectively 5.94, per 1,000 people. Most of the South Koreans are atheists — 49.3% of the entire population; 26.3% of the South Koreans subscribe to the Christian faith, followed closely by Buddhism with 23.2%, and a small percentage of 1.3 of other religions. The South Korean men are expected to spend 18 years in school, whereas the women are expected to spend maximum 15 years in school (Central Intelligence Agency).
6. Socio-Cultural Aspects
The official language in South Korea is Korean, with English being the second most commonly spoken language. English is taught in schools, both junior high as well as high schools. Additionally, the literacy rates are among the highest in the world — 97.9% for the overall population, with 99.2% for males and 96.6% for females (Central Intelligence Agency). While the difference in the literacy rates of men and women points to the existence of gender discrimination materialized in the reduced access of women to education, the large numbers of English speaking individuals translates into the ability of the U.S. citizen to easy interact with the locals. Given however that the foreign trade partner is interested in learning the Korean language so as to impress the local businessmen, it is interesting to note that, despite the closeness to China, the Korean language is more similar to the Japanese language (Gonzales and Sherer).
The South Koreans regard the family as the core of their lives, with the well-being of the household being the primordial interest, over the individual well-being of the family members. The father is the undisputable leader of the family, with the second in the authority and responsibility line being the first born son. Korean meetings are pertaining to state etiquette, with bows commencing and ending them. In more recent times however, Koreans will also shake hands with the foreigners, revealing as such a cultural blend. Relative to business relationships, these are best established and consolidated through social interactions. The South Koreans must first build trustworthy relationships, and then they will commit their efforts to achieving the mutually fruitful business objectives (Kwintessential).
The Republic of Korea has its capital at Seoul and is divided into 9 administrative divisions. It gained its independence on the 15th of August 1945, a day which is celebrated each year as the national holiday. The executive branch is formed from President Lee Myung-bak and his Prime Minister Chung Un-chan. The legislative branch is formed from the unicameral National Assembly (Kukhoe) and the judicial power falls in the hands of the Supreme Court (Central Intelligence Agency).
As mentioned throughout the previous sections, South Korea is the 14th largest economy of the globe, with a gross domestic product of $1.338 trillion, similar and even higher to the national output of highly developed western societies. South Korea’s GDP is for instance greater that that of Australia, Canada, the Netherlands or Switzerland. Four decades ago however, South Korea’s GDP was comparable to the national output of the poorer countries in Africa or Asia. This was however the time when the state officials became engaged in processes of modernization, global integration and introduction of high technology applications with business operations.
The most important features of the South Korean economy are summarized throughout the following table:
Value of the Indicator in South Korea
Global Average of the Economic Indicator
U.S. Value of the Economic Indicator
– from agriculture
– from industry
– from services
GDP growth rate
GDP per capita
– in agriculture
– in industry
– in services
Population living below the poverty line
27.1% of GDP
21.8% of GDP
14.3% of GDP
– $227.5 billion
– $216.7 billion
— $454 billion
– $2.524 trillion
– $2.987 trillion
24.4% of GDP
37.5% of GDP
1% to 4% in developed countries; 5% to 20% in emergent economies
The used data in the construction of the table above have been retrieved from the website of the Central Intelligence Agency. They point to the fact that both United States and South Korea are superior to the global averages. Nevertheless, it cannot be safely argued that the U.S. is entirely superior to the eastern Asian country. Both U.S. And South Korea manage to overcome the other in terms of certain economic elements. In terms of the GDP volume for instance, the United States is the undisputed leader; in terms of the growth rate of the national output however, the winning country is South Korea. Overall then, it can be argued that a solid partnership between the two states would materialize in mutual benefits for both parties.
9. South Korea’s Trade
South Korea’s current account balance registers a negative value of $6.349 billion, a major decrease from the $5.954 billion registered in 2007. The percentage presentation of the negative evolution translates into the fact that South Korea’s current account balance decreased by 206.63% comparative to the previous year. This massive reduction can be attributed to the decreased power of the South Korean won, the internationalized economic crisis, the threat of cheap imports or the changing consumer preferences. Nevertheless, it must also be noted that South Korea’s CAB has been following a descendant trend ever since 2006, as best revealed in the chart below:
* The data used in the construction of this chart were retrieved from Indexmundi, 2009
The shift in the country’s current account balance translates in the fact that South Korea’s savings in report to the investments have suffered reductions. Otherwise put, the negative value of the CAB indicates that the investments of other countries within South Korea have increased (Economics About, 2009).
Given the relative scarcity of natural resources, South Korea has most often turned to international trade as a source of economic prosperity. The country’s foreign trade policy has been focused on the liberalization of market as well as the diversification of the trading partners. In terms of diversity, this became a goal of the Seoul authorities as they strived to reduce the country’s dependency on some of its trade partners (American Memory for the Library of Congress, 1992). Today, exports account to $433.5 billion and they have followed an ascendant trend by increasing from their 2007 value of $379 billion. Imports account for $427.4 trillion, and they have registered an increase comparative to 2007. The following table reveals some pivotal information on the foreign trade of South Korea.
Total value of exports
Wireless communications equipments, Semiconductors, motor vehicles, steel, computers, ships and petrochemicals
Export partners (2008)
China (21.4%), United States (10.9%), Japan (6.6%), Hong Kong (4.6%)
Exports of oil
800,000 bbl per day
Exports of natural gas
Exports of electricity
Total value of imports
Electronic equipments, machineries, transport equipment, steel, oil, plastics, organic chemicals
Import partners (2008)
China (17.7%), Japan (14%), United States (8.9%), Saudi Arabia (7.8%), United Arab Emirates (4.4%) and Australia (4.1%)
Imports of oil
2.982 million bbl per day
Imports of natural gas
36.21 billion cubic meters
Imports of electricity
*Table constructed on information retrieved from the website of the Central Intelligence Agency, 2009
In 2008, the export of merchandise totaled up to $422.077 billion, revealing as such a 14% increase relative to 2007; the imports accumulated $435.275 billion, revealing a 22% increase comparative to 2007. Manufactured items represented the largest majority of exported merchandise, with 86.5%; the category was followed by fuels and mining products, with 11.3% and, lastly, by agricultural products, with 1.8% in the country’s merchandise exports. In terms of imports, these mostly revolved around manufactured items — 53.3%, fuels and mining items — 40.3% and agricultural products — 6.1%.
In terms of services, exports amounted to $74.107 billion, having increased by 20% comparative to 2007. The imports of services totaled up to $91.768 billion, a 12% increase comparative to the previous year. South Korea mainly exports transportation services — 58.8%, travel services — 12.2% and other services — 29.0%. The services imported are structured in a similar manner: transportation — 40.5%, travel — 18.7% and other commercial services — 40.9% (World Trade Organization, 2009).
As it can easily be observed, the United States of America represents a main trading partner for South Korea as it receives 10% of the Asian country’s exports and it constitutes the sources for nearly 9% of its imports. The table below presents figures on the past ten years of trade between the two states:
Exports to the U.S.
Imports from the U.S.
*Table constructed based on the information retrieved from the United States Census Bureau, 2009
The chart below reveals the evolution of the trade balance between South Korea and the United States of America.
It must be noted that despite the fluctuating values from one year to the other, the trade balance has always been positive, meaning that South Korea exported more to the U.S. than it imported from the North American country. This is a model desired by any economy as it constitutes the basis to sustainable revenues from global trade. Nevertheless, to the American investor, it could imply that the country is not looking to purchase American products, but is more focused on selling Korean products to the Americans. As a specific feature, it could mean that the American investor ought to consider operating a manufacturing plant and then exporting the resulted products onto other markets.
10. Foreign Direct Investments in South Korea
The federal authorities recognized the country’s necessity for foreign investments and liberalized the economy in order to increase the foreigner investors’ access to the national markets. Additionally, they also developed and implemented numerous incentives. For instance, they allocated enlarged budgets to develop the country’s infrastructure and as such better support the investors’ logistics operations, communications and so on. Then, they reduced the taxes and the regulations to be complied with by foreign investors. These measures were even more so necessary as South Korea was recovering from the economic crisis that hit the Asian continent in 1998 and 1999. In 2001, FDIs once again decreased, but this only reflected the reduced financial powers of the foreign investors, who were feeling the pressures of the economic difficulties characteristic to the western countries of that period. The investments again picked up in 2003 and 2004, but began to decrease again in 2005 (Industry Canada, 2008). The years since then have been marked by fluctuations, generally pegged to the state of the global economy and the policies implemented by the national governments.
South Korea pries on a well developed infrastructure, characterized primarily by a strong transportation system and increased communication abilities. In terms of transportation, the following are of the utmost importance:
a total number of 116 airports, out of which 72 have paved runways a total number of 516 heliports
1,423 kilometers of gas pipelines and 827 kilometers of refined products pipelines a total length of 3,81 kilometers of railways a total length of 103,029 kilometers or roadways a total length of 1,608 waterways, and a total number of 812 merchant marines (Central Intelligence Agency)
In terms of telecommunications, the following features characterize the South Korean infrastructure:
the existence of 21.325 million of main line telephones in use; in terms of this feature, South Korea finds itself as the 13th largest country in the world the total number of mobile telephones exceeds 45 billion there are 419 radio stations — 96 are AM, 322 are FM and 1 transmits in shortwave
the total number of television broadcast stations is of 57; the sector is also populated by 103 cable operators and 119 relay cable operators the total number of internet hosts is of 301,270
the total number of internet users is of 37.476 million, making as such South Korea the 10th country on the top of internet users (Central Intelligence Agency)
To the prospective investor, these findings point out to increased opportunities to capitalize on the investment due to increased abilities to efficiently run the business operations. The increased number of internet users points out to the fact that the South Korean labor force is well qualified to operate the new technologies and is well capable to easily learn and adapt to new requirements.
Based on the presentation of several elements which characterize South Korea, it can be concluded that the country both attracts as well as discourages the American investor. In terms of features which attract the American entrepreneur, these include:
South Korea is an extremely well developed country, with vast expertise in dealing with foreign investors, as well as with a revealed openness to the western culture
Due to its geographic location, it can easily be reached by sea; nevertheless, it is well developed from an infrastructural viewpoint and it can just as easily be reached by any means of transportation
It unveils opportunities for alternative sources of energy
It has a vast experience in working with foreign partners and can capitalize on the foreign investments in a means that helps both parties achieve their goals
The federal authorities support foreign investors in their endeavors
The workforce is not only cheaper than that within the United States, but it is also highly skilled and capable to answer to the challenges of the 21st century workplace challenges
Relative to the elements of discouragement, these include the following:
Significant cultural differences, raising as such cultural barriers
South Korea is still aiming to become united with North Korea; if this materializes, the country will be weaker from an economic and technological standpoint
The agricultural sector, through the reduced quality of the land, reveals reduced abilities to generate profits
The fluctuating levels of FDIs reveal a certain degree of instability within the country
Better levels of cost efficiency could be achieved in less developed countries
The final decision of whether or not to invest in South Korea as a means to increase the trade revenues of the Americans depends on each individual investor, on his financial resources, expectations and so on. All in all however, South Korea seems a desirable destination due to the governmental incentives offered to the investor, the highly developed infrastructure and the highly capable workforce.
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