The Hidden Treasure of South Korea
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Preface
The Republic of South Korea (Daehan Minguk) is one of the most developed countries in
Asia. Most of its people reside in the metropolitan area surrounding its capital, the Seoul
Capital Area, which is the second largest capital area in the world with more than twenty-five
million residents live there (Index.go.kr, 2015).
As one of the Asian Tiger, South Korea were transform from a poor country into a high-
income advanced economy and the world’s largest economy in 1995. Nowadays, South
Korea becomes the world’s seventh largest importer and eight’s largest exporter in
international trade (Encyclopedia Britannica, 2015). Not only aautomobile and electronical
parts that are being exported by South Korea, but also the popukar culture being exported.
This transformation cannot be done without any unique resources or unique capabilities that
are owned by the country. During this recent year, South Korea is famous with its Korean
wave that invading some continents. South Korea, is also famous with the tourism industry
for these past years. Therefore, this paper aims to explain about the environment of the
country and its attractiveness, following by the analysis of its potential industry which is the
tourism and cultural industry. This paper will also discuss about the best entry modes to do
investment in the country, and the way to overcome the obstacles regarding the investment
activities.
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Table of Content
Preface 1
Chapter 1 : The Republic of South Korea
The History about South Korea 3
The Environment of South Korea 4
Geography 4
Demography 5
Economy 5
Socio Political 6
Chapter 2: The Hidden Treasure
The Tourism and Cultural Industry 7
Chapter 3: Investment Activities
The Climate 10
The Prospects 11
The Threat 12
The Entry Modes 12
Conclusion 14
Bibliography 15
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Chapter 1: The Republic of South Korea
The History about South Korea
The history of South Korea is divided into two eras. The first one is the era before the
separation, and the second one is after the separation. The Korean Empire (Gojosoen)
founded by Dangun in 2003 BC (Asianinfo.org). At this time, the people of Gojosoen were
referred as the “eastern bowmen” because; the meaning of Chosun itself is “The Land of The
Morning Calm” (Urban Dictionary, 2015). The kingdom was expanded until it reached the
north part of Korean Peninsula, and some parts of Manchuria. The Gojoseon Kingdom was
having too many conflicts with the Han Dynasty from China. This conflict disintegrated them
into three kingdoms, which are Goguryeo, Baekje, and Silla.
The kingdom was united in 936, by King Taejo of Goeryo. He announced the new name of
Korea as Joseon, and moved the capital city to Hanseong (Seoul). Around 1592-1598 Japan
arrived in Korea and invaded them, but the attempt was fail. After the First Sino-Japanese
War and Russo-Japanese War, Japan was able to occupied Korea from 1910 to 1945. After
Japan surrendered in World War 2, the southern part of the Korea is occupied by US and now
become the South Korea. The northern part of the peninsula was occupied by Soviet, and
now it is called as North Korea.
After the separation, there is a tension between North and South Korea up until now. This
tension is caused by the tension between Soviet and US who occupied them. The division
itself happened in 1948. In 1950 North Korea invaded the South Korea and the first Cold War
sparked. The conflict continued until 1953. During this war, around 1,2 million people died
and no peace treaty was ever signed between them (Lacina and Gleditsch, 2005). This tension
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is heated again during this recent year, as North Korea attacked South Korea’s ship and island
in 2010 and the missile and nuclear test done by the North.
The Environment of South Korea
Geographic
South Korea is located in the Eastern Asia, the southern part of the Korean Peninsula
bordering the Sea of Japan and the Yellow Sea. According to the geographic coordinates,
South Korea lies between latitudes 33 and 39 N, and longitudes 124 and 130 E. The total area
of the country is 99.720 square meters consist of 96.900 square meters of land and 2.800
square meters of waters. The length of its coast line is 2.413 kilometers long.
South Korea has around three thousand island. The Jeju Island is around 100 kilometers from
the southern coast of South Korea, and it is the biggest island in the country (Asianinfo.org,
2015). South Korea has twenty national parks and another popular nature places
(English.knps.or.kr, 2015).
The country can be divided into four regions. First is the eastern part consisting of high
mountain and narrow coastal plains. Second, is the western part which consists of broad
coastal plains, river basins, and rolling hills. Third, is the southwestern part of mountains and
valleys. Last, is the southeastern part dominated by the broad basin of Nakdong River
(Asianinfo.org, 2015).
South Korea has a humid climate, with heavier rainfall during summer compare to winter.
This is caused by the East Asian Mosoon. The natural resources of South Korea are coal,
tungsten, graphite, molybdenum lead, and hydropower potential (Cia.gov, 2015).
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The industrialization of South Korea caused some destruction of wetland. Therefore, South
Korea implements green-based economic strategy by utilizing around two percent of its
national GDP.
Demographic
The total population of South Korean is around 49 million, with 487 per square kilometers
population density that is more than 10 times of the global average. Around 1970s up to
1990s there is a rapid migration from the country side because of the economic development,
resulting in most of the society lives in urban area (Countrystudies.us, 2015).
South Korea has homogeneous ethnic groups, except 20.000 Chinese are living there. 47,3%
of the society is consist of people between 25 to 54 years old. Following by 14,1% are those
between 0 to 14 years old. 13,5% consist of those from 15 to 24 years old. 24,7% of the rest
is consist of the elderly which are those around 55 years old and over.
Most of the South Korean people speak Korean, but English is widely taught in junior and
high school. Around 31% of the society is Christian, 24,2% is Buddhist, and 0,9 are others.
But 43,3% of the society has no religion. (Cia.gov, 2015)
Economy
South Korea’s economy growth is one of the fastest in the world during these past four
decades. The GDP of South Korea is around $1.666 trillion in 2013. There are several
industries that contribute to the South Korea’s GDP.
There are six sectors that contribute to South Korea’s GDP. The first sector is the
shipbuilding sector. During 1970s up to 1980s South Korea became a leader on this
industries. In 2008 South Korea became the world’s dominant shipbuilder with 50,6% market
share global ship building. The second industry is the automobile industry. This industry has
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it major growth in 1980s. Around 846.000 units of cars were produced and 83,3% of them are
exported to US. The third industry is the mining. But this sector is not large, since most of the
minerals are located on the northern part of Korean Peninsula. The last two industries are
construction and tourism. Construction industry has become an important export industry for
South Korea. There are several big projects that are done by Korean big construction
companies for example are the Petronas Tower and Burj Khalifa project. The tourism
industry in South Korea started to grow in 2012 as an impact of the Korean Wave (Hallyu).
Based on the data in 2011, the Korean Wave (cultural industry) contributed around 7,549
billion Won to South Korea GDP (Oxford Economic, 2012). The Korean Wave also has a
direct impact of direct foreign investment through demand product and tourism industry
(koreatimes, 2015).
Socio Political
Regarding the socio political aspect, the legal system of South Korea is a mixed legal system
of European civil law, Anglo-American law, and Chinese classical thought (Confucianism).
The Neo-Confucianism in Korea became rigid by the mid of 1500s. The practice of the
concept were emphasizing on the hierarchy in human relation and self-control of individual
level. The western social and political values such as democracy, individualism, the equality
of the sexes, and national self-determination were introduced by late nineteenth-century. The
Confucian tradition itself actually contains anti-authoritarian values. The socio political of
South Korea is interacting dualities just like the yin-yang concept (Countrystudies.us, 2015).
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Chapter 2: The Hidden TreasureDuring these recent years, South Korea is one of the most visited country in the world. In
2012, there are 11,1 million foreign tourist visited South Korea (UNTWO, 2008). Most of
them are came from Japan, China, Taiwan , and Hong Kong. The increasing number in the
tourism industry was caused by the popularity of Korean popular culture that known as the
“Korean wave” (Hallyu) (World Travel and Tourism Council, 2013).
This popular culture started to be popular at the end of 1990s. The drivers of the spread of the
culture is the broadcast of Korean dramas accross Asia. This culture were becoming a global
phenomenon becuase of the Korean pop music videos (Time.com, 2010). The spread of this
Korean wave has reached Latin America, Middle East, South America, and Western world
(Foreign Policy, 2013).
The Tourism Industry
In 2013, the total contribution of the tourism industry reached 5,8%. This industry also
contributed to the employment sector of the country. The industry also support around 6,3%
of total employment. This is means that it directly supported 617.500 jobs in the country.
The Korean Wave has a direct positive impact to the foreign investment. The investmet in
tourism industries was around 8,062 billions Won, which is around 2,3% of the total
investment in the country. The investment were forecast to grow up to 4,2% in 2014 (World
Travel and Tourism Council, 2013).
The leisure travel spendig in South Korea generated around 79.7% of direct travel and
tourism GDP in 2013. Beside of the leisure activities business travel spending were place in
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to the number two contibutor. The business travel is ecpected to grow up to 5.9%. (World
Travel and Tourism Council, 2013)
South Korea has so many main attraction. First is the historical tourist attraction which
include the ancient capitals of Seoul, Gyeongju, and Buyeo. Beautiful natural landmarksnlike
peaks of the Baekdudaegan, caves of Danyang and Hwanseongul also become the main
attraction. Another attraction related to the Korean popular culture is the entertainment tour
of South Korea, where visitors can visit some of famous artist management office.
Compare to China, South Korea is a tourist friendly country because of its higher service
quality. Modern advanced information are also developed by South Korea in order to
strengthen their tourism competitiveness. Through the minisry of Culture and Tourism,
Ministry of Agriculture and Forestry, and Korea National Tourism Organization the
government of South Korea manage the planning, investment and administration activities. It
implies that the development of the tourism industry is centralized. Korean government have
a high influence on tourism resource planning, festival, and event. Another major competitive
advantage of South Korea tourism is, it is relatively cheaper compare to Japan (Caracciolo,
2014).
This high involvement is needed to keep the quality of the public goods that are offered to the
customer. Korean cultural tourism is internationally oriented. National and traditional
cultures are properly conserved and inherited in Korea. The reparation of historic heritage
construction is also undertaken (Jiqing, n.d.).
The Cultural Industry
South Korea’s cultural industry is the creator of the Korean Wave. Most of the apects from
Korean Wave are contributed by the cultural industry. The Korean Wave aspect itself
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contains of popular music (K-Pop), drama (K-drama), language, technology, animated
comics and films, and the last one is cuisine. The history of this industry itself started in
1990s. During 1994, Hollywood’s share in South Korea movie market had reached aroud
80%. On the other hand, the local film industry only own 15,9% of the market. In the same
year, the total revenues that Holywood earned from Jurassic Park were higher than the sale of
Hyundai automobile. This occation made Kim Young-Sam (the former preident of South
Korea) realize that culture is one of exportable commodity. By the end of 1995, the
foundation to spread out the Korean culture was establish.
The first breakthrough of the cultural industry in Korea started by the K-Pop singer BoA
Kwon that were succeed in Japan. In 2001, a boyband calle Shinhwa released their album and
succeed to spread their popularity ovevrseas specially China and Taiwan. In 2002, a Korean
drama called “Winter Sonata” became one of the most successful drama in Asia. The DVD
sets and the novel of it were sold, and earned more than 3.5 million US Dollar in Japan.
Following by that, another Korean drama that were also succeed in Asia such as, Full House,
Dae Jang Geum, and Boys Before Flower. The success of the K-drama were followed by the
K-Pop as TVSQ (DBSK), SS501, and Super Junior were debute.
The cultural industry of South Korea also experienced a hard competition with their
neighbour countries like China, Taiwan, and Japan. For example, Japan has its own popular
music called J-Pop. Both of these countries use the idol group concept. Taiwan also use the
same concept. One of the most remarkable boyband at that time was F4, Fahrenheit, and
S.H.E. Especially for F4, they also acted in a drama called “Meteor Garden”, and wa remake
by South Korea as Boy Before Flower. By late 2000s most of South Korea’s competitor in
the music industry cannot catch up with their developement, K-Pop become more global than
before.
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The cultural industry in South Korea contribute around 7.549 billions Won in 2011. The
Government of South Korea considers that the Korean Wave is one of a good way to increase
the total exports of the country. Based o the data of Kore’s Ministry of culture, sport, and
tourism,, the ecoonomic asset value of the Hallyu is around 83,2 billions US Dollar. In 2013,
the Export-Import Bank of Korea annouced their decision to provide loans and credit
guarantees around 917 millions US Dollar for entertainment and food firms to spread the
Korean Wave.
Chapter 3: Investment Activities
The Climate
South Korea has an amazing economic gain and able to transformed itself into such powerful
country. The export oriented of South Korea grew at a 3% rate in 2013 because of the fiscal
stimulus. This rate is expected to grow higher in upcoming years. Even though the economy
has been developed, South Korea is a favorable place for doing investment activities.
To create a pleasant climate for investment, the government of South Korea put a lot effort to
strengthen the market competitiveness. This is done by boosting the foreign investment
incentives and allowing non-Koreans to own land in South Korea. Various tax policies were
also implemented by the government in order to attract the investor. The government of
South Korea also established several agencies to support the foreign direct investment
activities. Tax benefits, cash grants, and financial assistance is also provided by the
government.
The rapid expanding market of South Korea was supported by the global FTA network. This
network including the Korea-USA FTA, Korea-China FTA, Korea-EU FTA, and so on.
Furthermore, the South Korea’s market is located near the fast growing market of China, and
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US advanced market. Nowadays, South Korea is the world ninth largest country in trading
volume with more than 200 trading partner. The South Korea’s domestic market is also one
of the top ten in the he purchasing power.
In order to reduce the obstacle in investing in South Korea’s market, another regulation made
by the South Korean government. It is called as the three-year “economic innovation”. There
are three plans regarding the economic innovation. The first one is to normalize practices.
This is done by reforming the public sector. The second plan is to boost creative and
innovative economy by supporting entrepreneurship and women role in the workforce.
The last plan is to boost the domestic economy by targeting five service sectors for
deregulation. These sectors are education, healthcare, finance, tourism, and lastly software.
This deregulation is one of South Korea primary economic goals. The government of South
Korea is also trying to improve the consistency of the government interpretation,
transparency, and timeliness in the application of FDI regulations. It can be said that the
attitude of government toward foreign direct investment is positive.
The Prospects
Based on UNWTO, the largest number of tourism industry in South Korea was in 2012. The
foreign visitor that visited South Korea at that time were around 1,04 billion which means
increase by 4% compare to the previous year. As stated by WEF, the tourism competitiveness
of South Korea were in 25th position among 140 countries, and 6th place in the scope of
pacific region out of 25 nations. Tourism industries can be divided into several sectors. These
categories are food, accommodations, property, lease, recreation, and entertainment.
As domestic market in South Korea were increased by 9% in 2010. The rapid growth of the
contents solution market is expected to result in the whole cultural contents market. This
global cultural contents industry earned around 1,6 trillion US Dollar.
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The Threat
There is always a positive and negative side in doing an activities. Like wise investing in
South Korea. South Korea has a geopolitical risk that is caused by the tension with the North
Korea. In 2013, North Korea tried to use a propaganda in order to damage the foreign direct
investment activities in South Korea. The war between South Korea and North Korea is no
longer a conventional war. But it is more to the international war. This tension had damage
the South Korea’s economy back in 1950s because of the Korea War.
The second issue that needs to be consider is chaebol, which is the conglomerate of South
Korea. This group is famous with its imperialistic management. The companies of these
group are hard to be assessed as, the nature of their business is sprawling. Sometimes, the
decision that they make is not for the best interest of the shareholders (agency conflict). This
group is also known as with their poor corporate governance. This may impact the visibility
of the company. In this case, it is hard to see the drivers of the company to grow. It is also
hard to assess the performance of the company, the way that the company being managed,
and whose interest is become the based of the decision.
The third issue is the reliance on exports. This particular issue is quite dangerous if the global
economy is suffering from a down turn, as happened in 2008.
The Foreign Direct Investment Activities
There are several entry modes that can be used in order to do investment in South Korea. For
example like merger and acquisition, joint venture, or strategic alliance. Before explaining
further about the types of entry modes to use, it is important to understand how the regulation
of doing investment in the certain industry. Regarding the foreign investment activities, the
tourism industry in South Korea is divided into hotel, theme parks, ski resorts, golf courses,
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and casino. This division is done to make the administrative regulation become easier.
Fortunately, there is no specific regulation regarding cultural industry.
Based on several success stories in tourism industry, the best entry mode to do investment in
South Korea is the joint venture. As joint venture is a partnership between two partners, it
will be favorable for investors to have partner that understand about the rules and regulation
of host country in order to minimize risk. In the case of South Korea, the government plays a
big role in the development of the industry. Partner is needed in order to help investor to
understand the situation of the South Korea’s industry. The successful of this entry mode is
proven in the case of Berjaya Jeju Resort and Incheon Bridge.
In the case of the cultural industry, it is more favorable to use the acquisition entry modes to
do the investment activities. South Korea has a regulation regarding tax incentives in the
cultural industry. There is a reduction of acquisition tax and registration policy in order to
boost the cultural industry in South Korea. During past few years, China is one of the biggest
investors in South Korea cultural industry.
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ConclusionAmong all of the industries in South Korea, tourism and cultural industries have the biggest
attractiveness during these recent years. This is caused by the Korean Wave (Korean Popular
Cultural) that was spread during 1990s until now. The Korean Wave makes the tourism
industry in South Korea became booming, as well as the cultural industry in the country. In
order to attract foreign investors, South Korea reformed some of the regulation in order to
create a favorable environment for investment. The most appropriate entry mode for doing
investment in tourism industry is through joint venture. But for cultural industry, acquisition
is more appropriate as there is tax incentive regarding acquisition.
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