June 7, 2007

In Korea, product lifecycles are much quicker. A new product or brand’s sales will explode but often decline just as precipitously. Individual Korean consumers pick their goods, at least partly, in order to conform to group patterns. When they buy Mercedes, they all buy Mercedes. When they switch to Lexus, they all switch. As a result, Korea has fewer niche markets than the United States, and it can be harder to forecast which products the group will adopt next.    

To Americans, conformity feels suffocating. American consumers seek out products and brands that will differentiate them. But to Korean consumers, Chung explained, following dominant trends can be a satisfying affirmation of collective identity. That’s why the majority of luxury cars sold in Korea are black, why so many Korean apartment blocks are made from the same blueprints and why fewer than a half-dozen movies make up more than 90-percent of the Korean box-office take.

At the same time, Chung warned against treating Korean consumers as automatons. Some purchase decisions are more influenced by group dynamics than others. For example, Koreans tend to buy housing, cars, entertainment and liquor in order to confirm their identity as Koreans. Alternately, Koreans tend to buy goods like beer, coffee and hair coloring in order to express their individual identities. If foreign marketers can create a message that balances Koreans’ impulses towards “we” and “me” they may just reap huge rewards.

May 31, 2007

South Korea’s Incongruous Engagements: The U.S. FTA and the Kaesong Industrial Zone

South Korea’s economic policy is reaching out in two directions, cementing a free trade agreement (FTA) with the United States and jointly developing the Kaesong Industrial Zone with North Korea. Ostensibly, both initiatives aim to boost national GDP. However, according to Thomas Byrne, vice president and senior credit officer of Moody’s sovereign risk group, only one of these two engagements is practical.

South Korea’s drive to reach an FTA with the United States is a straightforward measure likely to yield great benefits for both countries, Byrne said. Numerous studies have predicted that once ratified, the FTA will be an important shot in the arm for Korea’s exporters and overall economy. Success with a U.S. FTA will also pave the way for an equally beneficial FTA with the European Union.

The economic rationale for developing the Kaesong Industrial Zone, which allows small- to medium-sized South Korean manufacturing companies (SMEs) to utilize low-priced North Korean labor, is to increase competitiveness in the SME sector. Currently, 10,000 to 12,000 North Korean workers are employed by South Korean companies at Kaesong. The zone would have to reach its projection of employing 350,000 North Korean workers, however, for it to have an appreciable impact on the South Korean economy. That, said Byrne, is unlikely to happen as long as North Korea and its neighbors remain at an impasse over its nuclear program.

More important than its economic rationale, he continued, are Kaesong’s political goals. South Korea’s leaders initiated the project with the hope that it might eventually spur the DPRK to adopt economic reforms just as China and Vietnam relied on special economic zones (SEZs) to spur wider liberalization in the 1980s. If the DPRK did reform, and enjoyed healthy economic growth as a result, South Koreans wouldn’t be stuck with as great a financial burden of raising North Korean living standards during an eventual reunification process.

So far, Kaesong’s policy architects haven’t articulated a plan of how the project will spur economic reform nor created benchmarks for its political success. There are also important differences between Kaesong and the Chinese and Vietnamese precedents. In those cases, the SEZs were meant to foster the development of local companies which had backward linkages to the larger national economy. Kaesong operates as a special preserve for South Korean companies, walled off from the rest of the North Korean economy. Furthermore, it’s unlikely that Kaesong will create a new class of capitalist-oriented North Korean managers, accountants and professionals who could serve as agents of reform. Because of Kaesong’s proximity to their home offices, South Korean companies operating there have no need to provide North Koreans with any training for higher positions.

Byrne closed his remarks with the caveat that Kaseong could indeed achieve its political goals if North Korea’s leadership made the decision to reform. At this point, he believes it hasn’t. And in comparison to its economic engagement with the U.S., South Korea’s goals at Kaesong remain elusive and quixotic.

Monday, April 23, 2007 We apologize for the inconvenience, this program is now canceled

1:30 – 2:00 PM Registration and Reception
2:00 – 4:00 PM Presentations and Q&A

The Korea Society, 950 Third Avenue, Eighth Floor, New York City
(Building entrance on SW corner of Third Avenue and 57th Street