Korea Country Overview Essay

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Trade

The audience for this presentation is a group of managers from American companies. The objective is to sell more Korean televisions in the United States, because South Korea believes that it has a competitive advantage in television. The presentation will deliver some background information about South Korea and its trade with the U.S., assuming that the audience has a few functioning brain cells.

Political Background

The Korean peninsula was split in the 1950s by a bloody war in which the U.S. was a major participant, between the communist North Korea and the democratic capitalist South Korea. Only South Korea has trade with the United States. Since the Korean War, South Korea has maintained its capitalist democratic system, and enjoyed a high degree of stability. Under this political environment, South Korea's economy has flourished. The only genuine threat to political stability in South Korea is the unpredictable actions of North Korea. For this reason, the United States maintains a heavy military presence in South Korea as a means of stabilizing the peninsula. (CIA World Factbook, 2014).

Economic Background

Following the Korean War, South Korea's economy flourished. In the 1950s, the country was an undeveloped backwater, but substantial military and economic aid from the West, along with a prolonged period of political stability, allowed for South Korea to emerge as an industrial power. The structure of the Korean economy is unique, centered around massive conglomerates called chaebols that control much of the Korean economy and are so large as to be influential in the world economy (Murillo & Sung, 2013).

The South Korean economy was initially built on steel and heavy manufacturing, but in more recent years has focused on consumer electronics, software and other information technology industries. The economy's rapid growth in over the past decades has been fuelled primarily by exports, though in recent years there has been more focus on fostering strength in domestic markets (CIA World Factbook, 2014). Overall, South Korea has the world's 12th-largest economy, roughly the same size as that of Canada or Italy. Major export products are semiconductors, telecommunications equipment, vehicles & parts, computers, steel and appliances.

South Korea has no oil, and is therefore one of the largest importers of oil in the world. Further, it uses fossil fuels for most of its electricity. This high energy dependence is a threat to the Korean economy in the long run, and a drag on domestic productivity since the country must dedicate so much of its wealth to importing energy. The need for foreign reserves to pay for this energy motivates the country to focus on export products, something that drives Korea to create source of competitive advantage in manufacturing. It is a net exporter, and the U.S. is Korea's 2nd-largest trading partner after China for exports.

The country's economy is generally strong. While it faced downturn when the global financial crisis reduced exports, most of its export markets are in Asia, where the downturn was less severe. The won has generally strengthened since 2010, but is also a fairly stable currency reflecting the stability of the South Korean economy (Oanda, 2014). Unemployment is very low at 3.2% and wealth is much more evenly distributed than it is in the United States.

Social-Cultural

South Korea's has embraced the capitalist mindset and many elements of the modern lifestyle but has also retained strong traditional elements in its society. Traditional elements of worship are particularly noted, as well as in family structures. In business, Koreans have high uncertainty avoidance, which but they also have a high-context culture that makes it difficult for outsiders to understand. There is very low individualism within the culture, and only moderate power distance. What all of this means is that there is a slight hierarchical element to South Korean society, but that Korean companies are generally collectivistic in nature. The company is expected to provide for its employees and by extension their families. Koreans are not as competitive as Americans and while many work very hard, there is a sense that work is just a means to facilitate living in Korean society. Koreans have a long-term time-orientation so deals are not generally seen as being one-offs but the establishment of a relationship. That said, Koreans have been doing business in American long enough that most have a good sense that American can be quite different from Korean in this respect (Hofstede, 2014).

South Korea has a strong education system that provides a high level of technical training.

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This, combined with a low unemployment rate, means that South Korean society is in general well-educated, hard-working and reliable. This is one of our best assets, and South Korea in general has been able to use this as a source of competitive advantage in building our technology industries in particular.

Infrastructure

Because South Korea has an export-driven economy, it has excellent infrastructure. Transportation and communication infrastructure within the country is excellent, given its wealth, small size and high density. Export infrastructure in particular is excellent. South Korea has one of the world's largest merchant marine fleets, and has several major container ports including at Incheon, Kwangyang and Busan. These facilities allow South Korea to move goods rapidly out of the country, and across the Pacific. Goods can enter the U.S. At Anchorage for customs, or be delivered to any Pacific Coast port to be closer to markets.

The banking infrastructure is also strong. This is one of the elements of the chaebol system in that each conglomerate within the system has a banking arm that can help facilitate growth, can lend to its own companies even during times of low banking liquidity, and can help to facilitate exports. The Export-Import Bank of Korea in particular has this mandate, in addition to the country's Big Five banks (CountryStudies, 2014).

In-Depth Facts and Figures

We have discussed the currency exchange rates already. The U.S. is one of Korea's major trading partners, but South Korea is not one of the United States' major trading partners. Total trade between the U.S. And South Korea has been increasing gradually over the past three years:

US-South Korea Trade

Imports

Exports

Total

2013

62386

41714

104100

2012

58901

42265

101166

2011

56661

43461

100122

Source: U.S. Census Bureau

With respect to South Korea's industrial capacity, it is significant. The country has a strong steel industry, and this has led to substantial manufacturing businesses, largely for export. The country has been increasing its capacity utilization since the 1970s reaching a record high in September, 2014 (Trading Economics, 2014).

The table for export and import trade partners of South Korea, from the CIA World Factbook, is as follows:

Top Import Partners

Top Export Partners

China

15.60%

China

24.50%

Japan

12.40%

USA

10.70%

USA

8.30%

Japan

7.10%

Saudi Arabia

7.60%

Hong Kong

6%

Qatar

4.90%

Singapore

4.20%

Australia

4.40%

Trade Agreements

Both the United States and South Korea are signatories to the World Trade Organization, wherein they pledge to reduce or remove barriers to trade between member states. The United States signed into law in 2012 the U.S.-Korea Trade Agreement, which has created a further framework for opening trade between the two countries. While to this point that trade has not accelerated much, the barrier removals under the agreement are gradual. The agreement has created opportunities for Korean exporters as well as American ones and should give South Korean manufacturers competitive advantage over those from countries that do not have a free trade agreement with the United States. The tariff rate for a high-definition television with DVD player, for example, is 0 under this agreement (Export.gov, 2014). The value of trade in this class of televisions was over $800 million in 2010 (U.S. Census, 2014).

There is the risk that other free trade agreements will lower barriers for televisions in competing nations. The Trans-Pacific Partnership is a massive trade agreement that will include among other countries Japan, Vietnam and Malaysia, all of which may become competitors in televisions. Japan in particular already does a high export volume in televisions to the United States, and competes on the same premium positioning as Korean companies. If Japan could sell televisions in the U.S. At the same price as Korean firms, that would definitely represent a competitive threat, so there is particular impetus for Korean companies to establish strong positions in the television market before the TPP goes into force.

The current trading regime with South Korea is positive for both countries. Free trade allows for a greater degree of economic efficiency, such that the country with the comparative advantage in a given product can produce that good for export to the other country. In a closed world, this would mean that Korea produces televisions for the United States and exchanges them for some other good. Korea's expertise in televisions allows it to produce high-quality TVs at a lower price than an American company could, and the U.S.-Korea Trade Agreement allows.....

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