Korea: A New Frontier for International Business
Mr. Mong-Gyu Chung
Chairman
Hyundai Development Company
Distinguished guests, ladies and gentlemen,
It is my greatest honor and pleasure to address you here today. Because the other speakers in this session provided an excellent overview of the Korean economy with a special emphasis on Korea's financial sector, my talk will specifically address business opportunities in Korea. I hope to elaborate on the changes occurring in both the global and Korean economy and highlight the reasons why the Korean economy has become so attractive to foreign business interests.
The past decade has witnessed a sea of changes in the world economy. Most significant of these is the triumph of free market system as the dominant economic system in the world. Due to the continued progress in the development of communication and information technology, economic transactions have become increasingly globalized. The two trends in tandem will require firms to become even more competitive in order to survive. A somewhat conflicting trend, however, is that countries are showing a tendency to trade and cooperate in regional blocs. What this signals is that we can no longer ignore factors such as a country's geographic location. In the near future, business opportunities are forecasted to improve, due to a recovering world economy that is assisted by the Asian economies on the rebound. Furthermore, China's entry into the WTO will not only create impacts on the local Asian economy but will also help shape the future of the world economy.
Every economy in the world is subject to these changing trends, and the Korean economy is not an exception to this. In fact, the foundation of the Korean economic structure is being transformed by these trends. An indicator for this is evidenced by the fact that communication and information technology is the fastest growing area in Korea. As for regional cooperation, Korea is continuing to enhance its trade relations with its neighbors. However, one of the future challenges which Korea must meet in order to be internationally competitive will be to combat exclusive trade blocs wherever they exist.
There has been a renewed sense of optimism with respect to the domestic situation at home. After two years of crisis, Korea's economy has recovered in almost every aspect, and now is the time for making new investments. The economy's macro indicators have either equaled or surpassed the pre-crisis levels. While the lack of foreign currency reserves was a key cause of the financial crisis in the latter part of 1997, Korea's foreign reserves currently exceed 90 billion US dollars. In addition, the accumulated current account in the past two years posted surpluses of 60 billion US dollars.
When the crisis hit, the manufacturing sector suffered the most. However, restructuring that was at times painful bore fruit as the manufacturing sector successfully regained its position as a leading world manufacturer. Beyond merely recovering to its past levels, the manufacturing sector has now gained a powerful new dimension. The dynamic growth of e-business and venture firms has brought a structural change in the manufacturing sector, essentially introducing new ways of doing business.
Restructuring and changes can also be seen in the public sector. By deregulating and liberalizing foreign investment, the government is actively translating its call for globalization into action. Of course, the role of public sentiment plays a crucial role in the shaping of the economy. Therefore, it is worthy to note that public sentiment toward foreign investment has dramatically changed since the outbreak of the 1997 financial crisis. At the cost of great suffering, the financial crisis served as a lesson to the public that Korea and the world economy cannot be regarded as separate entities but that they are interlinked, and that Korea's survival is dependent on cooperation with others. As this reality is gradually being realized and as the concept of a truly globalized economic system is being adapted, the Korea public's perception of foreign firms and products has become more positive.
Taking all this into consideration then, why is Korea an attractive place for business? There are three main reasons. First, Korea possesses strong market potential. Second, Korea has re-emerged with a restructured economy. Third, Korea plays an important role as a bridge among the Asian economies. With respect to the country's market potential, Korea not only ranks among the world's top 10 countries in terms of trade volume but its domestic market is just as comparable to its trade size. Korea's GDP is forecasted to be 450 billion US dollars this year with an economic growth rate of 7% and is expected to maintain at least a 5% growth rate for the next several years. This trend attests to the optimism that Korea's domestic market will continuously expand in the future.
Furthermore, some economists predict that the rate of consumption will increase and that the total volume of consumption will exceed that of trade in the near future. When that occurs, the Korean economy will no longer remain solely as an export-dependent or trade-driven economy - its growth will be based on the domestic market as well as on trade. Moreover, the steps taken to improve the social safety net will also change the consumption patterns of consumers. This change in consumption pattern will more closely resemble the pattern of a developed nation, reflecting public's desire to consume higher quality and high-tech products.
Not only do we see promising prospects in the demand side but also encouraging signs in the supply side. As you may already be aware, the Korean people hold quality education in high esteem. Though the nation is poorly endowed with natural resources, its excellent human capital which essentially is the direct product of high levels of education has paved the way to economic development for the past 30 years. It is my strong belief that this trend will continue well into the 21st century. This kind of human capital, coupled with a solid infrastructure, is essential in the digital age.
Even during the recent economic crisis, the Korean society has duly invested in preparation for a transformation from an industrial society to a digital society. The number of computers and internet users are increasing every year. Electronic stock trading through the internet has become immensely popular and common. You will easily find what we Koreans call a "PC Room" on virtually every corner of a street in major cities. These "PC Rooms," equipped with a up-to-date computers and services, serve as a facility for people from all walks of life - both young and old - to utilize various telecommunication domains for their PC needs. Another qualitative change in the Korean society can be seen in the relatively recent boom in the growth of venture businesses. Indeed, launching venture companies has been a catalyst for change; and with more than 5,000 venture enterprises in the fields of IT, telecommunications, genetic engineering and medical services, the Korean economy is geared for future challenges.
The country's restructured economy accounts for another reason why Korea poses a new frontier for international businesses. A stabilized financial market, reformed corporate financial structure, stabilized wages and interest rates and a reformed public sector all promise a robust and competitive economy that can absorb external shocks. All of the previously unsound characteristics in our financial industry have been eradicated during the painful restructuring period of the past two years. Many financial institutions, which used to have unstable financial structures, have been shut down, merged or acquired by healthier institutions.
Korea's major business groups, otherwise known as the "charbols," have undergone and are continuing to carry our tremendous changes as well. They were compelled to merge indispensable business units during the "Big Deal" process. In addition, they were obliged to keep the debt-equity ratio under 200%, which was maintained in the coming years. The tripartite agreement, which was introduced for the first time in the history of Korea's modern economy, has greatly contributed to stability in the labor market. Public sector restructuring includes massive sell-offs of public enterprises to the private sector, including foreign investors. Economic restructuring, along with stabilized macroeconomy, will make one realize that the Korean economy has emerged from an inefficient and high-cost system and has acquired a more advanced and sound character.
A third factor that makes Korea a strategic place to do business is that it can serve as a bridge to the dynamic Asian market. Situated between China, Japan and Russia, Korea's geo-economic location is advantageous for trade, investment and cooperation with these countries. Korea also possesses a unique potential to create strategic alliances with any of its neighbors due to its solid industrial base, which can use the capital and technology of Japan or the natural resources and manpower of China and Russia. The recent creation of an information infrastructure will help link Korean firms to those of its neighbors to save time, lower costs and provide new opportunities. In addition, in the event that South Korea unifies with the North, the unified country's growth potential will be further heightened, with the South's technology and capital complementing the North's natural resources. If we consider not only Korea's economic potential but also the prospects of the neighboring region, we can see that Korea offers exceptionally promising business opportunities.
I hope this presentation has illustrated Korea's potential to become an attractive and profitable new frontier in fostering new developments in business. I deeply appreciate your attention, and thank you for providing me with such an opportunity.