Lee Seong-min
Korea University in Seoul

Decades prior to China’s coming of age, Korea was the poster child for double-digit growth. In 1999, Korea’s GDP grew at a staggering 10.7 percent and in 2011 Korea’s GDP ranks as the 15th largest in the world at $1.007 trillion.

According to the CIA World Factbook, this little Asian country was the eighth largest exporter in the world with an export volume of $464.3 billion in 2010. Unfortunately, in spite of these staggering figures, there is a dark and ominous cloud hanging over the Korean Peninsula and the foreboding shadow cast highlights three big barriers hindering Korea’s overseas expansion.

To begin, the majority of exports that drive the Korean economy lack brand recognition. The bulk of the country’s exports are commodities such as computers, motor vehicles, petrochemicals, semiconductors, steel and wireless telecommunications.

Some companies have stumbled upon brand names such as Samsung Electronics, but these are just the lucky few. The majority lack brand recognition and poses a big obstacle to overcome. For Korean companies to grow outside they

Hyundai Motor’s i40

need a strong economic moat, namely the presence of a brand.

Without a brand to insulate themselves, companies will be led down a devastating downward spiral in a race to the bottom and slash prices just to stay competitive. If Korea continues to export mostly non-brand name products, it fights an uphill battle trying to expand in overseas markets that are saturated with cheap Chinese commodities.

Moreover, many of Korea’s exports are in the fast paced, fast changing and obsolescent prone industry of wireless telecommunications. These companies not only lack brand presence but also are part of an industry that transforms itself entirely every few years.

It was only three years ago that we upgraded our networks to 3G and now live in a world of ubiquitous Wi-Fi. However, in a blink of an eye, we have outgrown Wi-Fi as the preferred network and are at a crossroad between long-term evolution (LTE) and WiMAX, the next generation of wireless telecommunications technology.

Further, we are seeing a new wave of smartphones flood the market with 4G capabilities ready to render obsolete the aforementioned technologies even before it registers with us. This is the second impediment to Korea’s overseas expansion: Many of its biggest economic powerhouses are in the information technology sector and it is very difficult to predict what the industry will look like just five to 10 years from now.

Sony got it wrong a few times and look at where it is today. Who is to say history will not repeat itself at Samsung? The pace at which this industry changes is mind blowing.

Furthermore, the ultra competitive landscape of Korea’s exports acts as a hindrance to it growing overseas. A good example is Hyundai Motor Company. The company is the world’s fourth largest automaker having sold 1.7 million cars in 2010.

It is noted as the world’s fastest growing automaker. To the untrained observer Hyundai Motor looks like a sound business. Unfortunately, the car industry is an absolute cutthroat industry, where being the lowest cost producer is the only means to survival.
The industry is dependent upon too many variables and when these variables go up it is extremely difficult to pass on the additional cost to the consumer. This is a common problem that plagues all automobile companies.

General Motors (GM) is frequently in and out of bankruptcy having recently filed Chapter 11 during the financial crisis for a bailout. This is fatal for Korea to expand overseas. These Korean companies might have a standing in today’s global markets but due to its high fixed costs and R&D expenditures, it is incredibly difficult to phantom further growth overseas.

Nevertheless, despite the negative outlook painted above, Korea remains a case study for countries trying to emulate the Asian miracle and is a feat to be reckoned with. And for this little Asian tiger to push further forward it needs to remedy three things.
First, many of its exports are commodities and lack brand names. Therefore, with a myriad of non-brand name substitutes available, producers lose their bargaining power and make it difficult to expand overseas.

Second, the information technology industry is extremely volatile to disruptive technologies and many of the current major companies have a hard time keeping up with the rapid change in consumer tastes and preferences.

Last, many of Korean exports are in a highly competitive industry, namely the car business. If Hyundai Motor Company gets wrong the coming trend, it is more than likely that it will fall behind and will be lucky to tread water.

However, if Korea recognizes that not all that corporate glitter is gold and finds a way to overcome the above-mentioned obstacles, I see the dark and ominous cloud lingering just for a moment and passing by.