By Ravi Kumar
KAIST Business School Dean
When I arrived in Korea in 2008 to spend an extended period of time doing research on Korean companies, I came into contact with the Korean financial services system, as a consumer and a foreigner.
I needed a bank account and found very quickly that I needed one of my former PhD students to help me with the language issues —both in the forms to be filled and to deal with the bank service person.
I chalked this up to where I was, out of Seoul — but this continues even today as I take along someone to help me navigate my current consumer banking needs. I must admit that I am not using one of the downtown Seoul Global Banking Centers, which I do have an account in, due to its distance from where I work and live.
But once I had my smart credit/debit card, life became so easy to navigate. To hop on a bus — no problem, just swipe the card or any of a variety of other smart devices holding T-money; to go on the subway, it’s a snap--it even keeps a running total of how much I spend in a month.
And recently, I can do the same in a taxi. Similarly, moving money from my bank account to other bank accounts or to other people’s bank account — it’s scary how easy it is. I wish it could be that easy in Los Angeles!
This is the reason that the World Economic Forum’s 2010 evaluation of Financial Development score-card ranks Korea very highly. It’s 11th in the world on the Quality of Overall Infrastructure and eighth in Infrastructure for Business Environment.
But financial services is not just about Korean consumer banking and payment systems — there is the whole area of other financial services available to Korean consumers, global consumer banking as well as corporate banking, either in Korea or globally, that are equally important and maybe more important from a profit perspective for financial service companies.
For example, the per capita income of the Korean population will continue to increase over the next two decades on the backs of their successful industry.
This will necessitate sophisticated portfolio investment services, involving personal financial planners and personal financial analysts.
Similarly, the wealth of the people, stored in pension funds, needs careful investments in domestic and global markets to produce a reasonable return on acceptable risk.
Government regulations will have to change to provide access for foreign financial service firms as well as allow Korean financial service firms to go global in investing these funds.
The World Economic Forum’s 2010 ranking of Korea’s legal and regulatory reform is not very laudatory ranking 39th in Burden of Government Regulation and 34th in Institutional Environment. We all know that Korean people work very hard for their money — we need to ensure that there are financial services for their money to work harder to make more money.
Korean companies are selling large infrastructure projects to other countries. We have all heard the exciting news of Korea Electronic Power Corporation’s $1.5 billion sale of nuclear reactors to United Arab Emirates. Just last week, Korea Aerospace Industries sold 16 T-50 trainer jets to Indonesia, a deal worth $400 million and a potential sale to Israel is in the works.
Korean companies, having much prior experience building Olympics and other sporting events infrastructure, are awaiting major infrastructure contracts in Qatar as the country starts getting ready for the 2022 FIFA World Cup.
India’s Delhi-Mumbai Industrial Corridor (DMIC) project, worth $90 billion, is another opportunity that infrastructure companies in Korea are aiming at.
All these infrastructure projects have a critical financing angle to them — project financing is very complex, with a syndicate of banks involved, risks to be absorbed, insured and allocated.
There are specialist banks such as the World Bank and Asia Development Bank that were designed to be infrastructure lenders but more recently, global private banks have become more adept at lending in this scenario.
A similar area of growing opportunity is investment banking which supports mergers and acquisitions activity of global companies. Korean banks and financial service companies are deemed weak in these growing areas of opportunity which, in turn, could hurt the Korean companies’ chances at securing lucrative deals.
Also, such financing can provide very good returns, as compared to the very competitive consumer retail banking area, where the margins are shrinking with global competition.
All these areas of weakness point to the dearth of management skills in the Korean financial services firms, that in turn directs attention to a need for strong financial services education and an exposure to global standards and methods of operation in these areas.
While business schools at KAIST, Korea University, Yonsei University, Sungkyunkwan University and Hanyang University have specialized MBA programs in finance, the World Economic Forum’s 2010 ranking on the Quality of Management Schools is a disappointing 29th.
More importantly, they note that the ranking of Extent of Staff Training is 28th and that of Local Availability of Specialized Research and Training Services is 29th.
This is consistent with what I have heard that even in the area of derivative markets where Korea has very good ranking, Korean financial services are not able to design and produce derivative products and to a large extent, end up reselling other companies products.
So, if Korea is to move ahead, some major reform is needed in the area of financial services and significant investment in education and training in financial services.
We have seen that, as countries advance, their financial infrastructure has to be first rate and Korea has a long way to go still. Given that there are countries, like Spain and Ireland, which are ranked higher by the World Economic Forum survey but have economies currently much weaker than Korea, I have great confidence in Korea’s future in financial services.