South Korea’s Political And Economic Environment: Impact On Marketing And Trade Potential

South Korea’s Economic Growth

South Korea has gained recognition for its spectacular evolution from being one of the poorest nations worldwide to a high income, developed country within a generation (Messerli et al. 2019). In 2022, it has ranked 10^th amongst the largest economic powers in the world and 4^th in Asia alone. Due to China’s economic uncertainties over trade between Washington and Beijing and the forerunning pandemic, South Korean Economy had received severe backlash in 2020 (Colantone et al. 2021). Stagnant investments limited the country’s economic growth to 2.2% as per estimations in 2019, before declining to -0.9% in 2020 and rising to 4.3% in 2021. GDP growth would positively enhance to 3.3% in 2022 and be stabilised further for global recovery post-pandemic. Downgrading the credit rating in the USA, the “European Debt crisis” among external factors can add prevailing uncertainty to the Korean Economy (Mody 2015). The private sector has not bounced back well yet. Exports have emerged, led by automobiles and semiconductors. Corporate debt has represented 101.7% of overall GDP in 2019, where 6.3 rising points were observed from the previous year. The country has earned great success in terms of reducing poverty significantly (Yoshino et al. 2017). The income per capita has increased from USD 100 to more than USD 31,762 from 1963 to 2021.

The Korean peninsula has been a volatile and protracted conflict zone globally. President Moon-Jae has highlighted the concepts of peace economy and denuclearisation in Korean policies. The government aims to achieve economic unification by re-initiating inter-Korean cooperation while seeking a common market for Pyongyang and Seoul. Under Moon Jae-in’s administration, Seoul has undergone an initiative for advancing ties with ASEAN (Association of South-east Asian Nations) and India (Taskinsoy 2019). It will assist in the diversification of strategic and economic relationships amidst the uncertainty from competition posed by the largest trading associate, China and closest ally, the USA (Mosler 2022). The elevation of ties with South-east states would reduce risks of strategic friction between two eminent powers (Zhang 2018). The report will discuss the political and economic environment in South Korea and deduce its impact on the country’s marketing ad trade potential.

The South Korean economy has been able to convert itself from a low to a high-income nation in terms of technology and innovation (Lee and Lee 2021). The economy also got a boost from investments and exports during the last months of 2021. The global demand for “made in Korea” would continue to emerge, and improvement in consumption on the back of increased government expenditure to maintain solidified growth would be observed. Latest Reuter’s polls taken from over 20 economists suggest the country’s economy grows by 2.9% this year, recovering below 3.0% projected by the Bank of Korea. Adopting the “Open market Capitalist economy” negotiates with countries to sign free trade agreements and allows foreigners to freely invest in the country (Lawrence 2018). South Korea’s agricultural sector negligibly contributes to 1.8% of the country’s GDP while employing 4.8% of the active population. The service sector is the fastest and largest growing economic sector or provides 57.1% of GDP and employs 70% of the active population, especially supermarkets, store chains, and department stores (Yang and Greaney 2017). Tourism had shown a rise of 14%, according to the “Korean Tourism Organization” in 2019 (Oh 2021). As the number of Chinese tourists reduced for Beijing’s travel ban, the country waited for international travel borders to reopen. The rapidly expanding Economy of South Korea relies greatly on foreign exchanges. In addition, the country has transformed itself successfully to produce high-technology or high-value products requiring significant marketing proficiency (Wang and Hariandja 2016).

Political Policies and Business Environment

Economic activities in different sectors of South Korea

Source: (South Korea 2022)

Fig: Economic freedom indicator

Source: (Heritage 2022)

 

Fig: Ranking of South Korea’s business environment

Source: (Solutions 2022)

 

Fig: South Korea: World Economic Data Base

Source: (WEO 2021)

The Korean government policies have caused an average GDP growth of 5.45% annually between 1988 and 2019 (Lee 2019). The annual rate of export growth had fueled this performance to be 9.27% during the same period. It became the recipient of the first former aid for gaining membership in the DACX or Development Assistance Committee for “Economic Development and Cooperation” in 2009. The gross national income (GNI) per capita rapidly enhanced from 67 USD during the early 1950s to nearly 33790 USD in 2019. From the third quarter of 2021, the Economy has seemingly expanded a seasonal adjustment of 1.1% during the latter half, thereby beating the 0.9% expansion that was tipped in Reuter’s poll (CNBC 2022).

Fig: Country Report, South Korea (Relatively high GDP per capita)

Source: (Country Report 2022)

In August 2019, the country had to post its lowest unemployment rate recorded since November 2013, with figures falling to 3.1%, compared to 4.1% recorded in August 2018. The number of jobs had increased from 146,000 to 27.2 m in the given period. A rise in unemployment signals a reduction in rates of interest (Weisshaar 2018). Individuals aged below 29 have a high unemployment rate of about 5.7%. An increase in unemployment is inversely proportional to a reduction of 0.011% of economic growth, affecting global market standards. If the labor market shrinks, many policies need to be deployed for surviving the crisis. Soaring rates of interest and cutbacks in product demand forced businesses to leave the market, which can cause an increase in the jobless population.

The employment rate was 61.4% in August 2019, which is lower than the OECD determined average. The rate of employment for women has been considerably low (Jung 2019). The numbers of non-regular workers have increased, hitting a record of 7.5 m, which is also 36% of salaried employees in 2019. In the year 2020, 26.9 million individuals had been employed in South Korea.

The surging inflation has ramped pressures on the policymakers in South Korea to take influential action. The consumer inflation recorded in 2021 had risen to 2.5% (BBC 2022). This had been the fastest price surge since 2011 and was notified as a sharper increase than the BOK predicted (Ozili and Arun 2020). The Bank of Korea’s decision on raising interest rates to 1.25% has been observed as the third hike occurring within six months in 2021. South Korea remains at the forefront for the central banks worldwide to wind down stimuli for intending to curb growing consumer prices. The cost of living has also surged in the last 12 months by 5.1%, the highest recorded for decades (Lee and Kwon 2016). The country has become the first Asian major Economy to raise interest rates during the pandemic.

Opportunities and Challenges for Marketers and Traders

Fig: South Korea increases interest base rate to where it was pre-pandemic, for containing inflation and rising household debts.

Source: (BBC 2022)

Conclusion

Korea has used aggressive export policies for becoming one of the world’s competitive economies, portraying dominance in shipbuilding, automobile manufacturing, and electronics. South Korea stresses the concept of how possessing larger quantities of marketing resources would not only lead to product success. However, the skills attained from resources and proficiency in conduction of marketing activities would optimally bring success for South Korean firms. The BOK monitors the operational targets of monetary policies within the nation. The pandemic’s impact would be muted through governmental ditching of “test and trace” policies. Supportive fiscal expenditure, stronger private consumption and solidified external sectors should have positively functional roles. South Korea also would implement financial regulation rules like the Basel III framework for international engagement (Amorello 2016).

South Korea has become a friendly economy and can potentially increase direct investments in foreign states. The FIPA (Foreign Investment promotion act) would also govern foreign investments.  Economic restructuring programs aim to improve portfolios of corporations and commercial banks while revising labour laws.

The country would need to modify historical patterns of consumption and production. It should also efficiently utilise and manage natural resources to aid living standards. South Korea has been showcased as a leading nation in implementing ‘green technology’ (Piaggesi and Landazuri 2019) and it should continue the approach of using sustainable products for enhanced marketing potential. They would integrate trade relations to induce better performances. With newly evolving trends and consumer interests, marketing interventions should be allowed in Korea with distinguished patterns. The South Korean government should continue to invest in research in fields having the potential to be commercialised. Korea’s public R&D spending to GDP is notably the highest worldwide (Cardinale 2019). The subsidization and coordination of investment decisions is expected in the country. The maintenance of income equality would render the government to produce effective interventions regarding rent seeking. The Korean government should fund local R&D to truly make the country escape poverty and become prosperous through utilization of innovation. Korea should continue to import large quantities of natural resources like iron ore, coal and oil. The diversified competitive manufacturing and industrial base should be maintained for inducing positive trade relations. The execution of a well-maintained and modern infrastructure with fastest internet speeds can be utilized by the country to transport goods and communication. South Korea’s comparative advantage is in design and technology and this can be maintained to not lose market shares to other competitor nations.

South Korea is deemed to be a presidential republic. It consists of 9 provinces as well as 6 cities having autonomous administration like Seoul, Incheon, Daegu, and Busan (Lim and Jung 2020). The president functions as a state’s chief, government head, and “commander-in-chief” for armed forces. He or she remains elected for a five-year tenure by popular votes and enjoys executive powers while appointing the prime minister and cabinet members with parliamentary assistance. South Korea has unicameral legislation. The National Assembly or the parliament has 300 seats of distribution among parties. The government’s executive branch directly or indirectly depends on the National Assembly’s support, often through a “vote of confidence”. 

Transformation from a Low-Income Nation to a High-Income, Developed Country

In the constitution, citizens in the country have the right to freedom of speech, petition, press and assemblies for nationals. South Korea partners with WBG and is an important contributor to IDA or the “International Development Association” for funding support to the poorest countries (Ocampo and Ortega 2021). Korea led the establishment of a target in 2015 to expand its ODA or “Official Development Assistance” to GNI o “gross national income” ratio by 2020 to 0.2%. The government increased its IDA contributions while entering a framework of a co-financing agreement with the renowned World Bank and formulated multiple funds of trust. To facilitate the sharing of knowledge, “Korea’s Ministry of Economy and Finance” partners with the world-bank group to make analytical programs on pandemic response and preparedness lessons.

South Korea had heavily implemented globalisation after the financial crisis of 1997 to expose the country’s Economy to be embraced by other nations, thereby initiating a movement in information and capital goods across pertinent national borders. The Republic of Korea and the USA launched the “Korea-US Free Trade Agreement”, which is the largest FTA negotiated by the USA (Russ and Swenson 2019). Korea is a part of the APEC or “Asia-Pacific Economic Cooperation” forum, which envisions the establishment of free trade as an objective for all member nations. It also focuses on tariff reduction, investment liberalisation, government procurement, deregulation and IPR protection. South Korea also has 17 Free Trade Agreements with “ASEAN countries” (Trade 2021). The country has signed agreements like TRIPs or “Trade-related aspects of intellectual property” and GPA or “Government Procurement Agreement”.

The trade agreements would reduce wide-ranging taxes, trade and tariff treaties, and include investment guarantees. When countries agree with each other for trade through the application of trade pacts, easier implementation of trade relations are determined. The export-oriented strategies induce great economic success for South Korea. The nation appears to be the world’s seventh largest goods exporter and the world’s ninth largest importer. The trade has represented almost 70% of overall GDP in 2020.

The USA trade of goods and services with South Korea totalled $168.6 B in 2019 and $154 B in 2020. The exports have been reported to be $69 B, and the imports estimated to be $85.9 B. 

Corruption is moderate in South Korea compared to the broad international community or other nations of the Asia-Pacific zone. The CPI or “Corruption Perception Index” gives the country 39th among 180 countries. OECD shows almost 70% of South Koreans distrust the government for the presence of multiple scandals. The rate of people being confident in the judicial system is 30% and is lower than the standard OECD average of 41.8%. The government initiates steps to combat corruption, such as the appointment of ‘whistleblowers’ to protect public interests or report foreign bribery. Chaebols are controlled by multiple diversified affiliates, controlled by individuals whose power often exceed legal authorities (Hamdani et al. 2020). Chaebols impose illicit behaviour in business, and large conglomerates avoid corruption and taxes. However, corruption is moderate in South Korea in comparison to the broad international community. The political polarization, generational and gender gaps, leadership and Korea-Japan relations can have an adverse effect on economic relations. Corruption can halt economic growth while affecting business operations, investments, and employment. The reduction of tax revenues would be a result of political corruption, and can affect lawsuits and licenses in businesses of South Korea. If businesses deal with hidden prices, and competition exceeds expectations, partnerships would be generated for expediency instead of quality.

Achievements in Poverty Reduction

Conclusion

The “World Bank Global” Korea Office would become a global centre for technology, innovation and sustainable development to produce technology-aided resolutions and initiatives (Kopinski and Wroblewski 2021). The “Korean Agency for Standards and technology” develops imminent standards for Korean products The “Telecommunications Technology Association” covers information, technology, broadcasting and radio communication and collaborates with international organisations for fair marketing, influence and standard maintenance. The country has high political stability and citizen safety to offer. The public can be actively educated regarding the positives of utilising Korean goods. South Korea has been determined to be one of the least leveraged countries and produces a good opportunity for investors. Under the valuation perspective, South Korea is deemed to have a cheap equity market worldwide. It offers a stable economy with a high track record of income and growth. The risks of investing in South Korea would involve heavily relying on imports and the tense relationship observed with the immediate neighbour, North Korea. The government of South Korea is supportive and aware to actively promote originality. The country offers public safety, top-level infrastructure and highly skilled workforce for attracting foreign investors greatly.

South Korea should efficiently perform market surveillance on KC or Korean certified products and penalise products that do not meet requirements. Certification marks can be issued for recognising high-quality products manufactured by various Korean organisations. This would promote imports and exports from Korea. Sufficient information should be proposed for alterations in standards to allow countries and stakeholders to implement standards efficiently. As South Korea’s advertising industry aims to enhance consumer spending, television and newspapers can be effective media for influence. Web-based subscriptions can review and comment on proposed technical regulations in foreign nations, which affect access to various international markets (Sarnee 2020). The country has a skilled workforce and excellent infrastructure in the eyes of foreign investors, as per “Investment Climate Statement 2021”. It can be substantiated to mitigate trade-related relapses (Adebayo et al. 2021). The strong financial position of South Korea internationally in terms of low external debts and currency reserves produces intense opportunities. Brand savvy customers would be willing to spend for gaining quality products, which should be highlighted by businesses in South Korea. The high levels of disposable household income make it highly attractive for investors. In a ranking of barriers of investment among OECD countries, the country ranks 6^th. Consequently, the FDI restrictiveness index of 0.142 has exceeded the OECD average of 0.095. The country should mainly be oriented towards manufacturing, insurance and finance, real estates, transportation and communication. The country should enable minimal corruption to evoke trust from investors. As Korea has a pursuable attractive market, more than 90% tariffs get reduced. When other nations become cost-competitive, South Korea should increase bilateral trade with time. The country is based on market economy and individuals should be allowed to guarantee their properties and profits while conducting economic activities freely. Tax should be maintained to be low and government should offer stronger financial support for effectively investing in developmental research.

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