Multinational Perspective on the Business Environment in Korea
Tucker M. Kokjohn
President
Dupont Korea Inc.
Good afternoon ladies and gentlemen, it is a great pleasure for me to participate in this special session of the pacific basin economic council: "new business opportunities in Korea: investment for the future".
Dupont first began business operations in Korea in 1977. During the subsequent 23 years our wholly owned and affiliated companies have successfully grown to an annual revenue of nearly half a billion dollars, an investment approaching 200 million dollars at four manufacturing sites, and nearly 500 employees. For Dupont, Korea is a success story and has evolved to be a strategic country in the pacific basin.
I have titled my presentation "multinational perspective on the business environment in Korea". Perhaps I should modify that to say "a multinational's perspective" since I don't presume to represent the views of all multinationals operating in Korea, only the perspective of Dupont. Also, I need to present a dynamic rather than static view as the business environment in Korea has changed dramatically over the 23 years since Dupont first began to participate. To present this dynamic view, i would like to discuss three time frames in our business history in Korea, characterize the business environment of each, again, from the perspective of Dupont, and describe the business model used by Dupont to successfully compete in that business environment.
The first time frame is the ten year period starting from the beginning of our operations in Korea in 1977. During this period Korea was rapidly developing an industrial base. Quality of products manufactured, while improving, had still not reached global standards and the focus was more on commodity rather than high value-added goods. During this period regulations and high tariffs, which averaged 30% protected the developing industries. GDP growth during this period was cyclical, but overall quite high, average over 7%. The relatively low per-capita GDP, in the $1000 to $2000 range, translated into weak domestic buying power, and therefore, focus was heavily on exports.
To Dupont during this period, Korea represented a sizable and rapidly growing potential market. While the manufacturing base was developing substantially, it had not reached the level of maturity to support many of our high value-added products. Dupont opened a representative office and for ten years serviced the Korean market largely with those commodity products that were well positioned to compete on price. Most sales were offer, or indent, sales and in many cases opportunistic. While annual revenues grew rapidly during this period, to $40 million, Dupont had yet to develop a commitment to the Korea market.
The second period I want to describe begins in 1987 and concludes in the recent economic crisis in 1997. This period is characterized by significant maturing of the Korea industry. Korea entered the OECD and Korea companies, staffed with a highly skilled workforce, began to produce high quality, globally competitive products. While protection of Korea industry continued, falling import tariffs, from 30% down to 8%, opened domestic markets to more external competition. GDP growth continued high, averaging over 8% and per-capita income increased dramatically from $2000 to $10,000. These positive factors created an environment more condusive to foreign multinational companies participating, and investing, in the Korean market. Still, the inflow of direct foreign investment was limited to some degree by existence of several dis-incentives: restrictions on capital flow, weak intellectual property laws, non-competitive direct foreign investment incentive relative to many other Asian countries, rapidly increasing significant excess capacity in many industrial sectors.
This new business environment, while not ideal, represented a significant positive change. In our business strategy, Korea changed from "opportunist" to "commited". Our investment grew from nearly zero to more than $120 million with the construction of two manufacturing facilities. These facilities were used not only to service for other Asian markets. The growing demand for high quality, high value-added products suited the Dupont product portfolio well and a sizable stock resale business developed to supplement the growing indent business. By the end of this period, our revenues had grown almost ten-fold to $400 million and total employment exceeded 400. Dupont was truly commited to the Korean market.
And now we come to the final period, I'll call it IMF and beyond. We are early into this period and so I can't give you an historical perspective. Instead, I would like to summarize some of the key changes that are occurring, and must continue to occur in the Korea business environment. But before doing that, let me describe to you the Dupont business model for the next decade. It applies not just to Korea, but globally.
Clearly our focus will continue to be on sustainable, profitable growth in areas we have identified to be our core business. Dupont has repositioned itself recently from a chemical company to a science company, bringing science to the marketplace in ways that benefit slogan "the miracles of science" portrays that shift. Future business focus will be in high tech, high value-add, with special focus on life sciences and knowledge intensity business. Overlay all of this with a commitment to be a leader in the transition to e-commerce as the norm for business to business transactions.
So how is Korea changing to provide a business environment that is friendly to the new business model for Dupont? The financial crisis has served as a catalyst to initiate several significant changes. Financial and corporate restructuring is in progress, significant deregulation has occurred in many sectors, transparency is improving, there is greater awareness for the need to improve corporate governance, for empowering rather than hierarchical management practices, and focus on profitability of core businesses. Foreign businesses are more readily accepted into the Korean business community as evidenced by the decision of the Federation of Korea Industries last year to accept non-Korea member companies, Dupont being one, and the growing number of joint ventures and alliances with foreign partners. More and more, Korea companies are focusing on high tech, knowledge intensity offerings. Today Korea is experiencing a venture company boom that could give added vitality to the Korean economy in the 21st century.
All of these changes are positive and would not have occurred so rapidly were it not for the financial crisis. But they not complete, and must continue for Korea to compete favorably for its share of this global business pie.
The financial crisis also created a window of opportunity for foreign companies to acquire Korean assets that were not part of their newly defined core businesses and to establish joint ventures with Korean partners. Dupont was able to add its third, by acquisition, and fourth, by join venture, manufacturing sites during this period. Hopefully this window will never close and Korean companies will continue to seek synergistic relationships with other multinationals and, in doing so, expand their role and competitiveness in the global marketplace.
The 23-year history of Dupont in Korea is a success story. As the Korean business environment has matured and opened, Dupont has been able to identify more opportunities to successfully compete and, in doing so, contribute to the Korean economy through investment, employment, and exports. Korea, in the Dupont portfolio, has transitioned from an opportunistic, to a commited, to a strategic country in the Pacific Basin. We enter the new millenium with great optimism and high expectations for the Korean economy, for the Korean business environment, and for our long term business prospects in Korea.
Thank you for your attention and thanks to the Federation of Korean Industries for inviting me to participate.