By Charlie Kim
With the conclusion of a Korea-U.S. free trade agreement (FTA), many changes are being forecast, yet reports examining possible changes on the human resources front have yet to be produced. Forecasts of economic, industrial, and political change also still remain speculative, so it might be too early to discuss possible changes in the human resources area, which is a practical business area. Nevertheless, the future is only for enterprises and people that are well prepared, thus forecasting the impact of FTA on Korean human resource practices is very significant.
According to a recent research report by the Korean Institute for International Economic Policy, the signing of the Korea-U.S. FTA may result in a fall in employment in the short term, yet more than 500,000 jobs will be created in the long term. The report forecasts that the industrial structures of Korea and the United States show a strong tendency to be complementary, thus having substantial trade expansion effects.
At a forum on industrial strategies following the Korea-U.S. FTA on April 9, 2007, the Ministry of Commerce, Industry, and Energy (MOCIE) announced a comprehensive strategy to upgrade Korea's industrial structure following the conclusion of the FTA and to become a business hub in Northeast Asia. At this forum, MOCIE also announced four implementation tasks: 1) Providing strategic support for advancing into U.S. markets, 2) Attracting quality FDI by creating a world-class investment environment, 3) Strengthening R& D cooperation between Korea and the United States and expanding technological capabilities, 4) Implementing complementary measures to create advanced industrial structures. Then, what would be the impact of these objectives and implementation tasks on human resources?
1. U.S. market experts are required to explore promising new markets on a sustained basis. Even in the same markets, politics, society, culture and consumption patterns in the United States are different from those of Korea, so it is difficult to have access to the U.S. market with the same products and services in Korea. For instance, in the case of advancing into the same ``silver market,'' the needs of elderly people in the United States and Korea vary. American senior citizens who have already entered the aged society show considerable differences from their Korean counterparts who have just entered into an aging society. Moreover, with the rapidly growing proportion of minorities such as Hispanics, Afro-Americans and Asian-Americans in the United States, exploring opportunities in the U.S. market for minorities is also important. For these reasons, U.S. market experts will be more valued in the future, and the phenomenon where Korean Americans return to Korea seeking work, which took place during Korea's high economic growth period, will perhaps gain new momentum. People will no longer feel unfamiliar to see that the management of Korean companies comprises foreigners and English will be firmly understood as an official business language. It is as clear as daylight that English will be a basic requirement, not just a competitive edge. In accordance with such trends, English fluency will be an important factor in promotions and evaluations.
2. To create a world-class investment environment, the area requiring the fastest change for Korea is the upgrading of labor-management relations and government regulations. Although the Korean government has been easing regulations on a continued basis since the 1980s, according to World Bank's latest ``Doing Business Report,'' Korea is only the 23rd best country in terms of regulations regarding the conducting of business. In particular, labor unions in Korea are perceived as ``strong,'' even by global standards, and the Labor Standards Act is more lenient to the interests of workers than those of employers, acting as one of major elements blocking quality FDI. Thus, the ramifications resulting from changes in such areas on Korean society are more serious than commonly thought. As a simple example, if employers are allowed to lay off workers more flexibly than now, will labor unions accept this? When determining annual wage increase rates, could they be determined in collaboration with workplace union members, not influenced by higher-level union officials? Will foreign investors be able to understand and accept Korea's current seniority-based pay system? Will those who worked under the ``pay for performance'' system be able to accept complacent evaluation doling out posts regardless of performance and unscientific evaluation elements? Changes in all of these areas will raise Korea's human resource system to global standards.
3. Other important tasks to be tackled domestically include the improvement of education, laws, medical services and financing, which have been excluded from the FTA. Can a living environment where foreigners can lead a comfortable life be truly created without opening the medical services and education sectors? Can a world-class investment environment be created on the basis of international laws and international accounting standards, without any changes being made to domestic laws and domestic accounting standards? Furthermore, many foreigners staying in Korea say that Korea is the most difficult country to live in, compared to other countries. In the order of severity, the reasons include language barriers, education, medical services and the cultural environment. Language barriers were the similar level as Japan, yet education, medical services, and cultural environment were poorer than Japan. Especially, foreign schools were not rated as satisfactory. Due to low competitiveness in the aforementioned areas, the goal of becoming a business hub in Northeast Asia might merely remain an empty slogan.
4. The strengthening of Korea-U.S. R& D collaboration and expanding technological capabilities are essential elements for securing growth engines for the future and developing core technologies. Yet, what is worrisome is that students' tendency to avoid science and engineering majors is continuing. Moreover, although there is a need to lure not only Korean researchers working in the United States, but also foreign researchers to work in domestic research centers, preparations in this area are extremely inadequate. In the case of researchers, their work does not fit to the one-year time frame, which is the usual performance period, and their career development is different from that of average employees, thus requiring different types of HR management. Will world-class researchers be motivated to transfer technology to Korea? In addition, lack of personnel with internationally-recognized licenses is also emerging as a big problem.
5. The signing of the FTA will inevitably lead to numerous bankruptcies and unemployed workers. The areas to be most affected by the FTA will be, without doubt, the agricultural and manufacturing sectors. Although government funding of more than 130 trillion won was injected into the agricultural sector and farming villages between 1992 and 2006, its effects were not significant. In a situation where restructuring and enhancement of productivity are required in the agricultural sector, if support and assistance programs in preparation for the FTA are well-utilized, the nation's agricultural sector will develop into an efficient industry. However, for a company that has been engaged in a single business for 20 years, will the company have to switch to other business areas? Is it possible for a worker who has been working in a single business for several decades to change his occupation? If such situations become reality, more serious situations may result.
6. The FTA will bring about many changes in defining key talent and its management. Talents preferred by foreign management are those who are not only equipped with qualifications, but also excel in self-promotion and express themselves clearly and confidently, and accept the overall vision and philosophy of the company. If management taking charge of Korea only focuses on Korea rather than the company's global perspectives, will he or she be able to be promoted continuously? In addition, if management does not make interim reports on certain tasks and submits reports only when problems arise, will such management be able to be recognized? If employees are reluctant to talk to their boss due to language barriers or personality problems, their opportunities for advancement will be gradually reduced. Eventually, the human resource market will be more of a seller's market rather than a buyer's market for the time being and the cost of recruiting skilled workforce will rise further. The polarization phenomenon _ where the ranks of the unemployed are expanding rapidly on the one hand, and people with annual salaries of more than 100 million won are rising on the other _will be further accelerated. It is forecast that people will be increasingly required to strive to prepare and upgrade themselves for the job market.
The Korea-U.S. FTA is expected to promote investment in the mid- to long-term increasing new jobs, while in the short term, there will be side-effects like closures of businesses and an increase in unemployment. Obviously, the FTA will bring a great impact on the entire industry and the economy and it should be considered as an opportunity to upgrade the nation's industries into knowledge-based industries and high-value-added industries.
The writer is Hay Group Korea Representative director.