LA’S BEST INTEREST - (Ed note: Los Angeles hosts the largest Korean population outside of Korea. Many of the prime properties along the Wilshire corridor … and other communities … are owned by Korean businesses. Korean Air will soon build the build the West’s tallest hotel skyscraper in downtown Los Angeles. All of which makes Grace Kim’s analysis important and relevant to Los Angelenos and Southern California.) South Korea is a small country with grit. The shrimp sized peninsula is a national success story that transformed itself from impoverished conditions to industrial riches in a remarkable 68-year postwar period. The country experienced the fastest growth in per-capita GDP since the 1960. According to the World Bank, South Korea’s GDP per capita in 1960 was $155 and has risen to $22,424 today, which is greater than the national wealth of their Chinese neighbors.
Korea’s rise to world prominence did not come easily. The country rose to its ranks after being destroyed by a half-century of Japanese colonization and from the ashes of the divisive Korean War, which left its cities, including the capital, Seoul, in ruins. At war’s end GDP stood at less than $200 per capita, no natural resources, and a third of the population was homeless. Today it is home to a number of Fortune Global 500 conglomerates, most notably, Samsung at no. 14, SK Holdings no. 57, POSCO no. 167, and Hyundai no. 206.
The country also took a tortuous path towards democracy, living under authoritarian and military-dominated regimes until 1945. Now it is not only a thriving, and often contentious democracy, but now boasts its first female president.
But the question is: will South Korea’s miraculous rise to power give enough reason to believe that Korea is capable of global influence and expansion? For the most part, the answer – at least for the near future – is yes.
This trajectory will continue even though the country – known as the “shrimp among the whales” – lives next door not only to its unpredictable northern rival, but also in the same neighborhood as three world powers. Yet in qualitative terms it is increasingly out-performing their rivals and is one of the top tech capitals in the world.This place is literally wired for success: Number one in e-government and top five in the global gaming market, with the fastest and cheapest broadband connection on earth.
Due to the smallness of the domestic market – the country is home to only 48,955,203 people – Korean businesses need to operate on a global scale. Heavily dependent on international trade, the country, in 2011, ranked as the world's eighth largest exporter and ninth largest importer. An example of this is Samsung, the world’s largest smartphone maker. This will lead Korean firms to continue to invest heavily on a global basis.
Perhaps the most impressive accomplishment can be seen in smart phones, an area that long-time electronics leader – and former colonial overlord – Japan has stumbled in. According to the Wall Street Journal, Strategy Analytics reported Samsung’s smartphone shipments grew to 69.4 million units in the quarter, giving it a market share of 33% – almost twice that of Apple.
Samsung’s growing cash reserves evidence its strength as a fierce competitor to Apple and questions Apple’s ability to return to its market leadership. Some commentators predict Apple will need to make price reductions or find an unforeseen market that does not compete. But its most recent blow in the American markets came after the ITC ban on the import and sale of some Samsung products into the U.S. This moment can be the saving grace for Apple but Samsung continues to gain market share and, unlike its Silicon Valley competitor, it is highly diversified as one of the world’s most sophisticated maker for processors, memory, and high-resolution screens.
But these accomplishments have had their downside. The hyper-connectivity has engendered a “digital addiction” among young children. Concerned of this has become so pronounced that Korea’s science and education ministries announced its policy package in June to “wean students off of their dependency” through boot camps.
Yet for now, the country’s positive trajectory seems assured. This is not just a matter of technology and manufacturing. The Korean entertainment industry now ranks seventh in the world according to consulting firm PwC and is home to global stars like Psy of “Gangnam Style” and singer, Rain, whose influence in the music industry is unprecedented ranking him the most influential artist in TIME’s 100 list three years in a row. In the world of pop culture Korea tops the list among the Asian country competitors.
Besides entertainment, Korea’s global footprint has been growing exponentially. Korea’s direct foreign investment history in the U.S. increased steadily ever since the onset of South Korea’s financial crisis in 1997. Korean investment in the U.S. has jumped from $15.7 billion in 2010 to $24.5 billion in 2012. In particular, Korea has been investing heavily in its East Asian neighbors. South Korean companies were the biggest investors in Indonesia with POSCO, the country’s leading steelmaker, topping it off with a $6 billion joint venture deal with Indonesian steelmaker Kraktau Steel.
Korean corporations also have been establishing new homes in the U.S. over the years. For example, Hyundai Motors has built its U.S. Headquarters in Fountain Valley in Orange County to “secure its long-term future in California,” as stated in its press release. The two-year and 500,000 square feet development has cost $200 million and is located visibly alongside the I-405 freeway. The project symbolizes economic growth in California and projects a positive outlook for the future of Hyundai as a rising automotive leader in the world. Hyundai’s move also makes Samsung’s plans to build its North American headquarters in San Jose no surprise. Another example is SK Planet, a South Korean Internet services giant, that is planning to invest anywhere from $500 million to $1 billion in the U.S. over the next few years.
South Korea also has been one of the top three Asian countries to participate in the “East looks West” trend in foreign property investments. In hunt for safe and affordable places to invest, South Korean firms and individual investment in U.S. real estate have surged in the past year. South Korea takes the second-lead after Singapore in investing the U.S. market. According to Real Capital Analytics, Singapore invested $1.87 billion, South Korea $1.83 billion, and China $1.52 billion for a combined total of $5.2 billion in commercial real estate in 2013 alone. South Korea’s Mirae Asset Global Investments recently acquired Chicago’s West Wacker Drive building for $218 million. A group of South Korean investors also bought the Washington Harbor complex at the U.S. capital for $373 million in July.
Another noteworthy venture is the Korean Air’s plan to develop the tallest hotel skyscraper in the West at the site of the 1950s Wilshire Grand Hotel in downtown Los Angeles. Expected to be completed in 2017, the 73-story hotel is estimated to cost $1 billion. The skyscraper reinforces Korea’s determination to build its image as an aggressive, forward thinking investor.
The leaders of the country have typically been supportive of their conglomerates but also recognize the downfalls in investing too much in a single business. South Korea’s Iron Lady, President Park Geun-hye, has promised to address the country’s major issues starting with the “economy’s excessive reliance on a small number of huge conglomerates”. For instance, Seoul has offered $1 billion to small and mid-sized exporters in order to reach its targeted export growth of 4.1% in 2013. The South Korean government has also garnered free trade agreements in Europe, India, and reportedly help boost the U.S. auto industry.
Yet like other Asian countries, Korea faces some large long-term challenges. It lacks the girth of China, or the EU, not to mention the resources and entrepreneurial system for the United States. Perhaps even more serious, the country now suffers among the lowest birthrates in the world. Although this may not yet be a critical problem, lack of production in this area could threaten the country’s long-term economic position.
Equally important, research has found that couples that do have children are born with health risks due to the extreme dense way of living. Since the 1970s, the population ballooned and the limited land for residential use led to the mass construction of high-rise apartments. The high density and aesthetically displeasing public spaces in the largest cities makes Korea an unattractive place for foreigners to live undermining it as a global country. For example, Seoul, the country’s capital, ranks highest in population density among OECD countries, a problem in terms of future fertility.
Development in the services industry will also become critical overtime because of the country’s heavy reliance in manufacturing. Korea does not outsource like its competitors, which has largely contributed to its wealth. But in order to be ranked as a premier nation, services will have to become a higher priority, meaning growth in its skilled work force. Korea lacks the managerial, administrative, and professional social capital that give U.S., Japan, U.K., and Germany their world status. According to Global Insight, 30% of the nation’s economy comes from manufacturing where as the U.S. and Japan have only 13% and 20% in manufacturing jobs, respectively, with a majority of their jobs in services.
Despite its massive economy derived mainly from conglomerates and the wealthy few, Korea faces challenges in a number of areas: the diversity of its labor pool, new diplomatic strategies, declining demographics, lack of natural energy resources, and environmental sustainability. As they are keys to Korea’s continued success, the country’s long-term prominence falls into question.
(Grace Kim is an undergraduate at Chapman University majoring in Business Administration and Communication Studies who is also the President of the Chapman Real Estate Association and Editor in Chief of Meta-communicate, the Communication department's undergraduate research journal. This piece was posted first at NewGeography.com … edited by Joel Kotkin.)
Photo credit: Wiki Commons by user tylerdurden1.
Vol 11 Issue 71
Pub: Sept 3, 2013