Conventional wisdom is that South Korea’s most important trading partner is the United States. Ku-Hyun Jung, president and CEO of the Samsung Economic Research Institute in Seoul, disagrees. He argues that Northeast Asia has become Korea’s most important export and investment market, and that as the region’s economy continues to grow, so will its importance to South Korea.

Seoul’s economic ties to the U.S. are vital, Ku said. Recalling when he first came to America, a time when South Korean regulations barred him from buying more than $200 of American currency, he explained that the two economies had grown closer. Looking ahead to a U.S.-Korea FTA, he added that they would continue to grow closer still. However, Northeast Asia’s economies hold much more potential for Korean companies.

South Korea’s exports to Northeast Asia have increased 600% over the last few decades, while exports to the rest of the world are up just 400%. Korean foreign direct investment in Northeast Asia is currently at $26 billion. For Samsung and LG, buyers in Northeast Asia account for a third of their total sales. POSCO sells a quarter of its products to Northeast Asian customers. With economists predicting that the region will make up 35% of the global economy in years to come, those already impressive numbers are set to grow rapidly.

South Korea’s strong position in Northeast Asia dates back to the end of the Cold War in the early 1990s. Eager to expand, export and resource oriented Korean businesses faced a daunting challenge in trying to break into mature markets like North America and Western Europe. So instead, they opted to establish a presence in places like China and the Russian Far East.

In the coming decades, Korean multinationals will draw upon their non-price advantages (such as the high quality of Korean engineers, and the country’s aptitude for developing advanced technology) to expand on their strong position in Northeast Asia. Ku predicted that, fueled by growth in Northeast Asia, the next 10 to 15 years will be a golden age for the Korean economy.

Ku-Hyun Jung
President and CEO, Samsung Economic Research Institute in Seoul

Thursday, March 16, 2006