This is the 12th in a series of articles on suggestions to President-elect Lee Myung-bak. ― ED.
By Tom Coyner
Many international business professionals in Korea regard the election of Lee Myung-bak to the Korean presidency as the most important development since the so-called ``IMF Crisis.'' It's certainly one of the most positive events in the past decades.
In many resident foreign businesspeople's minds, all of this good news is not coming anytime too soon. Indeed, during the last year or so, I have heard some doubts about South Korea's future. These apocryphal concerns were not uttered by recently arrived naysayers, but by foreign businesspeople who have mostly married into Korean families and who have ultimately tied their personal fortunes with those of the Koreans.
Chief among concerns is Korea's relative lack of competitiveness under the growing shadow of China. While most Koreans are concerned about their giant neighbor's growth, we foreigners wonder if the threat is being taken seriously enough. Probably the problem is not so much a matter of awareness but of inertia.
For example, one topic I have yet to hear MB Lee address is the matter of the Foreign Economic Zones or Special Economic Zones (SEZ) where special treatments are offered to foreign companies if they relocate to one of these zones. Actually, these zones are by-and-large oases of international business efficiency in a market that seems to be hanging on to an emerging economy mentality while, quite ironically, trumpeting its membership in the Organization for Economic Cooperation and Development (OECD).
Even the name of Special Economic Zones recalls the term what we used to call classes for learning challenged students as being "special classes," when in fact, to use politically incorrect language, these were the classes for the mentally retarded children. What we have in SEZs are examples of what a cynic may be described as results from a retarded set of economic policies in lieu of establishing a truly open, international class market economy. Whereas various local governments promote their SEZs, the nation should be ashamed that such designated pockets exist.
Consider, for example, if you were to invest in Asia with little or no prior experience. How favorable would be your impression if you read that Korea is the world's 11th largest economy and still has special economic zones? At best, you would have to grapple with some kind of cognitive dissonance, but most likely one would ask what in blazes is going on with that country. One might as well invest in a giant developing country, such as China, where one would expect special economic zones given the lack of maturity within the greater part of the business environment there.
Historically, Korea has been where China is today ― offering primarily good, if not great, goods cheaply. Over time, we have seen Korean international construction, shipbuilding, consumer electronics and automobile sectors mature from cheap and adequate to higher priced goods but of competitive value. But we should keep in mind that this was an evolutionary path that has largely disappeared.
Today, because of China, India and other emerging economies, Korea is being denied the evolutionary growth model as it must find and grow markets requiring higher value propositions higher up the ``food chain'' of more advanced products and services. That is, Korean companies are being forced to come out with advanced products that emerging economies cannot easily create and enter into new market sectors where cheap pricing alone will not work.
Most of Korean business is primarily haggling over price with sales people acting more like order takers who routinely drop their prices, almost regardless of the overall value proposition. While in the past Korean businesspeople could enter new markets on the cheap, many find today's new markets dominated by the Chinese and others who can offer pricing far cheaper than Korea. Consequently, Korean companies are being forced to enter new, advanced sectors ― and are often losing.
And this leads us to one of Lee's special concerns ― university reform. The overall quality of Korean university education is decidedly below OECD levels. Most students endure horrific competition by mastering rote memorization of facts and calculations at the time of university placement. But after then, much of the learning stops and rarely students at any level are adequately challenged to think and be creative as criteria for graduation. Yet, to be able to ``think out of the box'' is often required to be successful in international business.
To give you an example, consider the T-50 jet trainer, the pride of the Korean aerospace industry. It is arguably the very best jet trainer one can buy anywhere. But it has inadvertently become the most expensive plane in its class. Nonetheless, the plane has training capacities that few or possibly no other jet trainer can match. As such, the T-50 conceivably has a very strong value proposition ― provided there is someone capable of selling it in this new market for Korean companies. The apparent problem is that Korean sellers are ill prepared to sell on a level beyond simply product and price. Their education and their domestic sales and marketing experience leaves them inadequately prepared to walk into this kind of international class business. As a result, to date, virtually none of these excellent planes have been sold abroad. But please understand I'm not picking on the T-50 sales team. They are hardly alone. They just seem to be representative of many Korean international marketers.
I have cited just two of the challenges ― SEZs and inferior education ― that President-elect Lee Myung-bak has to address soon. The good news is there has never been anyone as capable as Lee to take on these challenges. The open question is whether he can achieve the necessary results in time.
Tom Coyner is president of Soft Landing Korea, a consulting company focusing on sales and human resources issues. He is co-author of Mastering Business in Korea: A Practical Guide.