Brand Confucian

KT hired 3 women to top-tier executive positions this week.

They are:

Lee Young-hui, executive director of the corporate customer division

Song Yeong-hee, executive director of the home customer division

Yang Hyun-mi, chief business strategist for the retail customer division

While it’s nice to see more women in executive positions, I kind of get the impression these three were just sort of inserted ad hoc simply because of their sex (see org chart below). Checking out their curricula vitae however, I see they are highly qualified for their new positions.

Whatever his motivations, CEO and chairman Suk Chae Lee should be praised. Great move for the company, great move for the brand.

Today, Chosun Ilbo ran this piece on “What’s Behind Korea’s Falling Economic Ranking?”

Although such rankings are practically meaningless in our interconnected global economy, the article does make a few points that are worth considering. Once again, blue is the Chosun, black is me.

According to the World Bank’s rankings of nominal gross domestic product (the value of all goods and services produced in a country expressed in current prices) released on Monday, Korea stands at 15th place, after Australia. In 2003 Korea ranked 11th. Experts say the biggest reason behind the fall of four notches in just five years is lost growth momentum.

◆ Weakened Growth Momentum

Korea’s annual economic growth rate hovered between four to five percent over the past five years, while the economies of newly-emerging countries, such as China, Brazil and India, expanded close to 10 percent annually over the same period.

Sometime, Korea is going to have to stop comparing itself with developing nations. Granted, when the entire globe becomes developed, it is unlikely that Korea will be in the top 5 by real GDP. However, companies and the government mustn’t think about Korea’s place in terms of short-term economic growth, but of global industry share. Korean companies have been consistently poor performers when it comes to international expansion. In order to remain key players, Korean firms need to expand aggressively in the global arena over increasingly narrow product categories. Korea’s downgrade isn’t telling us about the growth trends of China, India, and Brazil, but about how Korean firms aren’t aggressively positioning themselves in these markets.

The article does hone in on the second reason for declining growth: piss-poor FDI.                         

“Korea is losing its growth momentum as investment has dropped markedly since 2000,” said Kwon Soon-woo, an economist at the Samsung Economic Research Institute (SERI). “With investment declining, Korea’s potential growth rate (the expansion that can be achieved if a country’s financial resources and labor force are put to full use) and real growth rates have been lackluster,” he added. Korea’s potential economic growth rate was 4.5 percent prior to the global financial crisis. But as investments have fallen drastically both last year and this year, it is estimated to have decreased further 

And why is investment (both domestic and foreign) declining? DongA Ilbo’s recent survey of 60 foreign firms doing business in Korea is telling. The firms give the following list of obstacles for doing business in Korea

1. Over regulation
2. Excessive corporate taxation
3. Unreasonable/unyielding labor unions
4. Language barriers
5. Instability due to North Korea
6. High cost and low productivity 

It’s telling that at least 4 out of 6 of these are completely controllable phenomena. And ‘high cost and low productivity’ could arguably be a product of the first 4 factors. 

◆ Effects of Consumer Prices and Foreign Exchange Rate 

The effects of rising consumer prices are directly reflected in nominal GDP. The more consumer prices rise, the larger nominal GDP becomes. “Until now, Korea maintained stable economic growth and consumer price levels, while Brazil, India and Russia’s nominal GDP are getting bigger due to high consumer price increases on top of high economic growth,” a Bank of Korea official said. Resource-rich Australia became the world’s 14th-largest economy last year thanks to growing exports and GDP, as raw materials prices have been climbing since 2006. 

Again, Korea needs to stop comparing itself with developing countries – inflation in Korea has been on par with or in excess of that in other developed nations. Yet the US, Germany, France, and a slew of other developed nations maintained comparative real GDP over the timeframe. 

In contrast, Korea’s consumer price increase was offset by the weak won. Nominal GDP is calculated in won and then converted into U.S. dollars. As a result, nominal GDP shrinks if a country’s currency is weaker than the dollar, even if consumer prices in that country rose. The Korean won was worth W955 against the dollar on average in 2006, W929 in 2007, but weakened to W1,103 in 2008. 

Although a factor, it must be said that the won is part of Korea’s competitive mix. Korean won value fluctuation isn’t an exclusive or completely random phenomenon. How the won fares against the pound, yen, euro, dollar, rupee, etc. is every bit as integral to Korea’s global competitiveness as is the quality of Samsung LCD TVs. It boggles my mind that the bank of Korea claims the ranking is too low due to weak currency. If BOK doesn’t take responsibility for Korea’s currency. Who will? 

◆ Need for New Growth Engines 

Experts say investment needs to rise in order for Korea to boost its global economic ranking. “Korea remains competitive in exports, but private consumption and investment remain weak. Korea’s domestic economic structure needs to be strengthened by reviving private consumption and Institute, said, “Korea’s economy could grow faster in the future, because Korean products have been increasing their share of the global market since the global financial crisis.” But Oh advised that Korea needs to tap into new growth engines in order to return to its previous rate of growth, since it would be difficult for the government to shift back to a strong won policy as officials seek to maintain the country’s current account surplus.investment,” Kwon at SERI said. Oh Moon-suk, a senior economist at the LG Economic Research. 

I absolutely agree with this assessment. Korea, like all developed nations needs new growth engines, new entrepreneurs, new ideas, new business development. Experts at places like SERI and LG Economic Research Institute are hoping these new growth engines will spawn from within their organizations. And they will. But the government needs to work on a system for promoting SME development that promotes healthy competition – not an easy task mind you, but crucial to long term growth.

apologies for the light lack of posting…I’ve been out of town. SERI puts out a weekly wrap-up of major economic and business trends I thought would be beneficial to this forum.

I also highly recommend their site: http://www.seriworld.org

Monday, June 29

• In its latest edition of the Economic Outlook, the OECD forecast the average growth of Korea’s real GDP from 2011 to 2017 to be 4.9%, the third highest among the OECD member countries. Yet, the OECD expected Korea to post 2.0% inflation in 2010 and 3.0% in 2017, the second highest among OECD members. The unemployment rate of Korea was projected to fall to 3.5% in 2017 from an OECD low of 3.9% in 2010.
• A Korea Chamber of Commerce and Industry survey revealed that domestic companies will increase their facilities investment by about 3.0% in the second half compared to the first. The companies pointed out new products and technology development investment (24.0%) as the biggest reason for investment growth in the second half of this year. By industry, companies in the electric power and gas sector accounted for the largest portion (11.1%) of those that answered that they would raise their investments.

Tuesday, June 30

• The Bank of Korea (BOK) said the business survey index (BSI) on expected business conditions for domestic manufacturing companies rose two points from June to 78 in July, a sixth consecutive rise. However, the index on expected corporate profitability fell to 83 from 85 of June, suggesting that companies feel price pressure when importing raw materials as international oil prices have edged up over expectations of an economic recovery. Meanwhile, the BSI forecast, announced by the Federation of Korean Industries (FKI), recorded its first decline in three months to 98.7 in July.

Wednesday, July 1

• According to the Korea National Statistical Office, consumer prices in June rose 2.0% from a year earlier and fell 0.1% from May. An official from the Ministry of Strategy and Finance (MSF) said, “Amid overall stability in oil and commodity prices and foreign exchange rates, the prices of agricultural/stockbreeding/fishery products tumbled 4.8% from May.” As a result, the contribution to price rise made by agricultural/stockbreeding/fishery products reached -0.42 percentage point. This offset the 1% rise in the prices of industrial products.
• The FKI stated that the nation’s 30 major conglomerates will invest a total of 72.67 trillion won (provisional data) in 2009, down 10.7% from 2008 (81.36 trillion won). Yet, the R&D investment in future economic growth engines will edge up 1.7% to 16.92 trillion won. New employment is expected to shrink 29.4% to 59,286.
• At the International Policy Forum on Budgeting hosted by the MSF, Thomas Byrne, senior vice president for Moody’s in Singapore said, “There is no possibility of Korea’s sovereign credit rating being lowered both in 2009 and 2010.” He also said that Korea is a typical “A2″ class country with its national debt, capacity to repay debt and government capacity in controlling debt much more favorable compared to other countries in the similar class.

Thursday, July 2

• At the third government-civilian meeting chaired by President Lee Myung-Bak and attended by CEOs of large and small/medium-sized companies, the government decided to create a facilities investment fund worth five trillion won together with state-run banks and pension funds to vitalize investment. In addition, the government will provide R&D tax cuts of as much as 25% on R&D spending for large companies and 35% for small- and medium-sized companies.

• The BOK announced that the foreign currency reserve stood at US$231.73 billion as of the end of June, the largest level since the end of September 2008 (US$239.67 billion) and swelling US$4.96 billion from May. During the first half, the reserve rose by US$30.51 billion, a record high in terms of half-year growth. The central bank forecast the foreign currency reserve to continue to increase for the time being. The ratio of foreign debt due within a year to foreign currency reserve also declined below 90% at the end of June.

Friday, July 3

• The MSF stated in its current economic trend report that “While the economy is on the path to recovery, the private sector’s ability to recover is still weak.” The finance ministry also added, “The indicators of the real economy such as production, consumption and investment showed improvement amid continuous stability in the financial market, but the overall economy remains stagnant.” Thus, the ministry reaffirmed maintaining its expansionary macroeconomic policy. In addition, the ministry viewed financial markets to remain stable in June but had lingering uncertainties such as a possible reappearance of concerns in international financial markets and threats from North Korea.

http://www.seriworld.org

LGT lost their red sparkly shoes and didn’t make the trip from Oz to the “World IT Show.” While I think the no-show was probably a mistake for the brand image, I thought they got a little too much flak for it from the industry press.

Asia Finance issued the following report yesterday. It’s amazing what companies have to put up with in Korea.

Blue is them, Black is me.

LGT Just Feigning R&D

-Company sites cost cutting as reason for ‘IT World Show’ no-show

-LGT Turning away from result-driving R&D investment

Criticism that LG telecom is neglecting Research and Development (R&D) investment while focusing solely on increasing its customer base is on the rise. This is a break from the vision of LG board chairman Bonmoo Ku as it diverges from the high level of aggressive R&D investment he had [previously] ordered for the corporation.

According to the industry (June 23), LG Telecom’s no-show at Korea’s largest IT event, the June 17-20, ‘World IT Show,’ held at the Coex [convention center] in Samsung dong, Seoul has been criticized as directly connected with a lack of commitment to research and development.

Okay, had to break in here for a second. “According to the industry?” WTF? Did the industry demigod prophesy this to him or what? Let me say here that I think this guy’s point is one for every marketing VP to consider when her company starts to tighten the proverbial belt. Not participating in the “World IT Show” definitely has consequences on brand image. But this journalist really sucks at his job – more on that in a minute. Oh, and just a comment on this guy’s writing – it’s so damned opaque that this thing took me 3 hours to convert into (somewhat) readable English.

[The fact] that major LG corp. player LG Telecom was the only no-show while for four days the top domestic ICT industry players including Samsung electronics, LG electronics, KT, and SK Telecom showed off their new technologies and cutting-edge products, was all the more regrettable.

Regrettable? To whom? You, lowly reporter dude? I’d say KT and SK Telecom are probably doing cartwheels. And why would you regret it? Are you an investor? What’s your beef? And don’t give me any nationalistic bullshit response about how it’s regrettable because a Korean company seems to be losing face (although that’s probably bullshit too, and I’ll get to that in a minute).

A source at LG Telecom said regarding [the absence] “Strategic judgment, including the need for cost savings, and no other motivation led to the decision not to participate in this year’s exhibition.” He also cautioned against drawing [any other] far reaching conclusions.

Okay finally, you talked to someone and did a little reporting. Thank you. And maybe you should listen to this guy. It’s like you’re driving the last nail into LGT’s coffin with this report. God man!

However LG Telecom’s failure to appear at domestic and international IT exhibitions large and small and its decreasing profile aren’t 2-day phenomena.

According to an industry insider’s assessment, although [it’s true that] LG Telecom’s investment budget is smaller than its competitors, because new technology is a weakness, LG Telecom has no choice but to shun exhibitions where [direct] comparison with industry competitors is unavoidable.

The industry insider said “participating in a domestic exhibition can require somewhere between 500 million won ($358,000 US) and 2 billion won ($1.5 million US), so it could be a burden,” but then retorted, “But isn’t it [more likely] that LG Telecom’s real Achilles heel is that their lack of a variety of applications would mean that they [simply] would have a hard time coming up with things to attract visitors attention?”

Okay at least you’ve stopped quoting the ubiquitous and omnipresent ‘industry,’ but ‘industry insider?’ Come on, be a little more forthcoming. The title ‘insider’ tells me nothing about his motivations. I doubt he even exists. He could be you, for all I know.

Although I’ve been reading Korean newspapers for a long time now, I still don’t understand how Koreans put up with this malarkey.

Concerns that LG telecom is focused solely on immediate results at the expense of investing in its future are on the rise.

Whose concerns? Who are you talking about? Again with your concerns? Dude, nobody cares!

LG Telecom decreased its [2009 Q1] operating development budget 24% [year on year] from 7.161 hundred billion won ($550 million US) to 5.414 hundred billion won ($416 million US). This year among LG Telecom, KT, and SK Telecom, LG Telecom has decreased its research and development budget by the largest percentage.

JinOh Kim (김진오기자 (기자로 자격이 없지만)) jokim@asiae.co.kr

This is my favorite part. By this guy’s calculations, LG Telecom would be a $479 Billion dollar company. He got the math wrong by a factor of 100. Dipshit. Also, I checked the numbers, posted here, and it looks as if LG Telecom usually made an unusually big R&D push during the 4^th quarter of 2008. In fact, if you compare Q4 2008+Q1 2009 to Q4 2007 +Q1 2008, LG telecom actually posted an 8.2 percent increase in R&D spending. So the guy from LG Telecom was right. Sure, they’re cutting back on advertising. But that means one thing and one thing only as far as we can ascertain: they’re cutting back on advertising.

While this guy’s writing style and journalistic integrity are definitely not of the highest caliber, the concern he raises was likely to have been felt by any attendant at the World IT Show. You definitely don’t want your customers saying “What happened, I wonder if something is wrong…hmmm.” Consumers are jittery enough already in today’s economy. And if LG’s sole strategic focus right now is just getting people in the door (which might be perfectly legitimate, by the way), a conspicuous no-show at this exhibition was probably not the right move from a brand-image perspective. Even if they didn’t have much of a ‘wow’ factor with new technology, there’s no reason they couldn’t have piggy-backed with LG Electronics. And hey, as long as you give away some free shit at one of these things, you’ve done your due diligence on the customer’s part.

Banks will roll out the much anticipated 50,000 won note tomorrow. A survey of the English and Korean language press on the event reveals the following interesting predictions on the note’s possible effects. Although a few of them I believe are misguided, each merits consideration from a marketer’s perspective.

Increased convenience

According to the Financial Times, the average Korean withdraws between 110,000 and 120,000 currency each time s/he visits the ATM. What took 11 or 12 notes before can be handled with three. Also, no longer will consumers be hassled with those pesky 100,000 won promissory notes (수표) that require a national ID number and mobile phone number. Most likely a 50 thousand won will replace promissory notes up to 500,000 or even 1,000,000 won.

Less paper and paperwork, more convenience. Fairly straightforward, so far.

Price increases – worries of price increases

Again, the Financial Times reports worries that consumer products manufacturers may increase prices. Most likely, manufacturers will alter package volume to increase value on 30,000-40,000 won products.

That seems reasonable, although frankly, as a marketer, I wouldn’t advise re-packaging initiatives coinciding with the new denominations’ launch. Such projects could easily backfire. Consumers (particularly Korean consumers) aren’t stupid, they’ll notice, and even if value increases, a 15-20 percent increase in packaging size is sometimes unperceivable, or seemingly insignificant. Korean products have been priced with the 10,000 won denomination in mind since its release in 1973. And price is only one variable influencing package volume demand. Consumption rates, average family size, and psychological price-value thresholds also must be given appropriate consideration when determining product volume/quantity. Before marketers and manufacturers jump on the re-packaging band wagon, they’d better do their research.

Increased Consumer Spending

The Korea Herald reports that retailers are hoping consumers will increase spending upon the release of the note – particularly on larger ticket items.

I’m not holding my breath. These retail marketers (I use the term lightly) are neglecting a well documented phenomena called the denomination effect. People are less likely to part with larger denominations. Granted, people will be more likely to spend the 50 thousand won notes than the 100,000 won promissory notes. But these aren’t as widely circulated as the ubiquitous Man-won (10,000 won[note]). Koreans are likely to be more attached to a 50 thousand won note than they are to five – 10,000 won notes. Since consumers overwhelmingly use the 10,000 won note on purchases up to 100,000 won, I predict that consumer spending in cash is likely to decline slightly, but overall will remain fairly constant as credit card spending for purchases of  50,000 – 100,000 won  will likely increase inversely. There is likely to be an initial frenzy spurred by various  ‘50,000 won discount events’ in which retailers actually forfeit margin in an effort to get people to part with these new notes, but after that, I believe things will pretty much go back to normal.

Increased inflation

Milton Freedman famously posited that “Inflation is everywhere and always a monetary phenomenon.”  Milton’s monetarism, the theory that largely informs fiscal policies the world over (including Korea), and has held relatively true for the past 4 decades or so, holds that inflationary pressures are directly related to the overall supply of money. Any inflation in the next couple years will have nothing to do with currency denomination (unless the new note increases monetary velocity by some exponentially miraculous factor – which it won’t) and everything to do with the hundreds of billions of dollars MB  borrows from kindergartners to spend on the great and ‘green’ economic bailout.

Increased Corruption

This one is by far my favorite. Munwha Ilbo’s Choi Bum obsesses opines on how the new denomination will increase the valuation of black money. You know, that black and vile stuff lining the nooks and crannies of an increasingly morally bereft society. Imagine their glee as shady politicians, mobsters, and pimps consider fattening their bank accounts from ever-thinning envelopes and more portable attaché cases.

After seeing the reporter’s name, I thought the article might be tongue-in-cheek. So I asked a Korean writer friend for a gut check – nope, the dude is officially a crack head.

I’m salivating.

Seriously.

MK reports that the much anticipated iphone release in Korea is scheduled for July.

About 3 months ago I went out looking for a new ‘smart’ phone and found that most ‘smart’ phones available in Korea are really rather dumb. While Haptic from Samsung Electronics has a nice, sleek design, and the LG cookie phone is cute, the content developed by manufacturers and service providers was severely lacking in my humble opinion.

I hope to see the iphone take Korea by storm. With such a large portion of the youth population not only familiar with web 2.0 technology but also with programming, I am optimistic about the application development market in Korea. I hope this platform is the next big thing for Korean nerds so they can showcase their innovation.

I also believe that millions of Koreans – my guess is around 5-6 million – will switch over. This will be huge for KT (formerly KTF) as I think they will take significant market share from SK in the venture. I hope that Apple will stick to its guns and remain with KT exclusively, at least for a while. This is total conjecture, but I’m guessing that the thing that’s been holding the phone’s release up – aside from government regulation, is the pricing arrangement with KT. Although subsidised mobile phone pricing has been available in Korea for some time, companies tend not to offer steep discounts on more popular models.

The pricing model is what I think will make this deal a game changer. A Korean friend of mine who purchased a new cellphone only a month ago is already planning on making switch. Korean consumers change handsets more frequently than consumers anywhere. SK will lose many, many subscribers in this battle. It will be interesting to see what they do to compensate.

One thing I am interested in is how the phone will be marketed. This is where Apple needs to be careful of being too hot-headed. A little market localization is in order. They definately need some local star power… someone not too expensive, but relevant and sofisticated. Hmmm….And in addition to TV and internet, they also need some event marketing. I hope they don’t blow this. It’s the opportunity of a lifetime.

Once I get my grubby paws on one of these things, and after allowing significant enough time to gauge the market response, I intend to write up a full review from the Korean consumer perspective.

 

Asia Economy had the following story on public sentiment regarding the Ssangyong motors fiasco. Once again, everything in blue is my translation. Black text is commentary.

A public survey reveals that 80 percent of Korean citizens opposed governmental use of force in the Ssangyong motors bankruptcy incident.

According to a telephone survey of 1,000 men and women conducted June 15-16 by Hankil Research on behalf of the ‘National Commission for the Proper Restoration of the [Korean] Auto Industry,’ 79 percent of respondents “oppose the use of force at the [Ssangyong] bankruptcy. Those in support of using force numbered 17 percent.

70 percent of respondents indicated that, regarding the current situation, “the government is most responsible because it allowed Ssangyongs sale to Shanghai motors which stole the subsidiary’s technology without any making any investment in the local firm.” Shanghai motors was the largest culprit for 19.9 percent of respondents, and the workers union was faulted by 13.2 percent of respondents.

Twice the number of people (63.1%)opposed resolving the company’s problems through labor firings and layoffs as supported (31.1)such measures.

On whether or not public funds should be used to [bailout] Ssangyong through nationalization opposing opinions stood taughtly at 45.3 percent for and 42.6 percent against.

This survey had a 95 percent reliability with a ±3.1% standard error.

Reporter Hyeshin Ahn (안혜신) ahnhye84@asiae.co.kr

Is it sad that Ssangyong motors is going through bankruptcy and has to lay off a bunch of its factory workers? Most certainly. But layoffs are sometimes necessary to keep a company afloat. Companies need to be able to downsize when they’re in a crunch, without fearing psychotic labor unions.

And as for the whole thing being the fault of government? Well that is just more protectionist bull-shit.

Ssangyong management knew, or damned well should have known, what they were getting into when they decided to sell their shitty little company to Shanghai motors. I’m sick of hearing this load of turkey shit about how Shanghai didn’t invest any money and stole Korea’s technology. That’s not necessarily how it works people. I’m sure Shanghai motors invested all they were planning to invest on the initial purchase. After that, they saw it as local management’s job to get their act together and make the company profitable again.

It may sound harsh, but it’s a perfectly legitimate way to do business. Not to mention the international model. As a subsidiary, Ssangyong was responsible for turning a profit and repatriating it to Shanghai. That’s the way it works my friends. As for stealing technology, how can you steal something you’ve legitimately purchased?

Responsibility for the failure of Ssangyong lies chiefly with the local management, then Shanghai motors.

Responsibility for the current labor fiasco also lies with local management – they fucked up communication with their employees and have just been total idiots about their labor policies – but mostly with the labor union. Again, the government is off the hook.

All of this aside, the human suffering aspect of this story is what is most tragic. These poor workers, through no fault of their own, have lost their jobs - truly a travesty. But to make matters worse, they are lied to and rallied by a self-serving, vindictive, un-productive, and un-principled labor union that on the whole is serving as the biggest obstacle for business to move forward and the laborers to find new work.

Money Today reports ‘public official’ as the #1 employment choice for job seekers in Korea. This according to a survey of 1,153 job seekers conducted by online education and employment portal Eduwill. The group collectively favored employment by the government as a public servant at 20.1 percent of all respondents.

 

 

 Other prospective occupations fared as follows:

 

Public Servant (공무원) 20.1%

Regular office worker (일반사무직) 17.6%

Skilled professional (기술직) 10.8%

Finance professional (금융직) 8.9%

Educational professional/teacher (교육직, 교사 교직원) 7.5%

Marketing/Advertizing  (마케팅,홍보직) 7.3%

Sales, including business start-ups, (창엄을 포함한 영업직) 5.4%

 

 

 

Interestingly (although not surprisingly) respondents differed by sex, reinforcing deeply held cultural gender norms.

Men

Public Servant (공무원) 22.7%

Skilled professional (기술직) 16.1%

Regular office worker (일반사무직) 14.2%

 

Women

Regular office worker (일반사무직) 22.9%

Public Servant (공무원) 16.3%

Educational professional/teacher (교육직, 교사 교직원) 11.3%

Although not mentioned in the report, I would venture to guess that the gender split also applied to the marketing category as it has been my experience that marketing is predominately considered a ‘soft science’ in Korea so to speak, and women make up a larger portion of the marketing and advertizing work force (though not at the executive level, but that’s another story)

Reasons for field choice fell into the following broad categories:

Job Security 36.7%

Salary Level 20.6%

Job Satisfaction 17.1%

Career Prospects 13.8%

Even though MB has harped on the ‘smaller government’ string and has, to a certain extent, cut government bureaucracy down (though I wouldn’t yet say ‘to size’), It seems that sentiment is that that government positions are at least more solid than positions in the corporate sector. I suppose this is understanding considering the current economic situation, but frankly, once you get hired into corporate Korea, it becomes damned hard for your employer to get rid of you.

Biggest perceived obstacles to attaining career goals were:

Lacking foreign language skills 35.7%

Lack of prestigious academic affiliation 20.6%

I’d have to agree with the foreign language skills obstacle. In this global marketplace, communication with foreign companies, employees, and governments is more important than ever. Academic affiliation is important too, but sadly, in Korea, it tends to be less based on academic (and later professional) merit, and more on a perpetual system of academic cronyism.

What I see in these numbers is tremendous opportunity for students of business in Korea. Only the gutsiest students with the strongest constitutions seem to be going the corporate route. Sure, we are still likely to see millions of the incompetent flock to the government sector (and this sincerely means headaches for everyone), but sifting out that chaff leaves more cream for the business sector. If only more of them were looking seriously at global companies instead of all-mighty Samsung…

And women are representing in this cadre nicely. Looking at these numbers, I can’t help but garner a slightly brighter glimmer of hope for sex equality in Korea.

The following article pushed several of my libertarian buttons. I’ll try not to get too worked up about it, but provide a fair and balanced counter argument. The blue text is my translation of the original article, and the black text is my own.

 

Stop the Foreign Technology Leak-Hole

Kyunghyang news

 

-42 exposures in 2008, an increase of 31 percent over 2007

-No regulation stopping leaks of core national technologies through M&A deals

 

The recession is increasing worries about industry technology leakage. This is because executives unsecure about employment are easily tempted to change companies, and the possibility of domestic firms being merged with or acquired by foreign firms is increasing.

 

Okay, the leaking of industry technology is a big deal, no question. And firms have a right to expect protection from intellectual property or trade secret theft. But let’s not confuse illegal trade secret theft with completely above-board M&A transactions. Korean firms go willingly into M&A transactions for their own selfish (and by that I mean good) reasons. The technology that such firms possess, and chose to sell to other parties (whether foreign or domestic), belongs to those firms alone. Such technology is not some intangible ‘Korean’ asset possessed by the Korean people as a whole by default due to the fact that the firm was originally established in Korea.

 

In the June 11th report, “The daily increasing severity of trade secret leakage,” Samsung Economic Research Institute (SERI) explained that the number of exposed trade secret theft cases has rapidly increased 31 percent from 32 cases in 2007 to 42 cases in 2008. The number of exposed trade secret theft cases increased around 1-3 cases annually from 26 cases in 2004, but as the economy worsened last year such cases increased dramatically. Had these trade secrets [actually] been leaked, [the report] estimates probable damages also increased from 1.3 trillion won (1.08 billion USD) per incident in 2004 to 1.9 trillion won (1.58 billion USD) per incident in 2008.

 

The report indicates that security and executive employee management systems development pale in comparison to technological advancement and that the probability of trade secret theft is high. [The report identifies] avenues of possible trade secret leakage including ‘internal agents’, ‘M&A deals’, and ‘joint ventures.’

 

Again, perfectly legal M&A deals, and joint ventures have no place in this list. And what about those ‘joint ventures’ anyway, wouldn’t a foreign firm have just as much claim to technology that was developed collaboratively?

 

Cases of current or former employees offered bribes or exceptionally attractive salary packages or promotions for stealing technologies are typical.

 

From 2004-2008 former employees contributed to 56 percent and current employees to 27 percent of exposed trade secret theft cases. In particular, as companies striving toward globalization increase overseas production and research facilities, they are beginning to see cases of foreign-subsidiary employee trade secret theft. Recently a mid-sized company’s ‘hydrogen storage alloy’ technology was leaked by employees receiving cash awards of 200 billion won (16.6 million USD) and high level promotions [from competitors.]

 

Now this is the kind of blatantly malicious trade secret theft against which companies need to protect themselves. However, if Korean firms, the Korean government, and the Korean press insist on conflating the issue to include completely legitimate instances where technology has transferred via legal merger or acquisition, they undermine their overall credibility on the matter.

 

Instances of trade secret leakage in merger or acquisition processes were also not few. In early 2000, Korean firms Sewon Telecom , Maxon Telecom, and Bellwave Telecom which had significant Chinese operations became largely insolvent as Chinese firms acquired mobile technologies through the acquisition of Korean firms Hyndai Syscomm (handset manufacturer), and Gigatelecom.

 

This is a perfect example where Korean firms with tentative foot-holds in the Chinese market simply lost market share to a local firm which acquired technology legally through legitimate M&A transactions.  Sewon, Maxon, and Bellwave wouldn’t maintain bitching rights if the M&A in question involved an American or European firm. Actually such bitching rights never existed. If they couldn’t compete in the Chinese market on their own, or by leveraging joint venture operations with local firms, frankly, that’s their own damned fault. Now, these companies might have legitimate concerns about trade barriers levied by the Chinese government that impeded their natural competitiveness in the Chinese market, but such concerns are unrelated to the trade secret issue.

 

Also Shanghai Motors, which acquired Korean subsidiary Ssangyong motors, is accused of leaking core technologies including hybrid diesel technology to China. Besides these cases were also 6 cases in the past 5 years of technologies leaked during joint research ventures where Korean scientists or researchers were invited overseas.

 

“Accused of leaking?” Give me a break. Shanghai Motors can’t ‘leak’ trade secrets they legitimately purchased. And as for the scientists, again, if the foreign company or university was funding the project, just the fact that a Korean brain participated in the research process doesn’t mean that the Korean public has any claim on technology developed on a foreign firm or university’s dollar.

 

According to Sungbae Park, executive researcher with SERI, “From a national perspective, Korea has designated ‘core national technologies’ but has no regulation addressing the leakage of these technologies when the companies that hold them are subject to mergers and acquisitions,” and “We should note that the US and Japan have a regulatory apparatus that allows for [the government] to block mergers and acquisitions of domestic firms by foreign entities.”

 

By Sukgi Kim skim@kyunghyang.com

 

I will admit that there may be certain technologies that warrant protection for national security reasons. The U.S. would be loath to allow a foreign firm to acquire a sensitive defense contractor like Boeing or Lockheed Martin. It is a good idea for Korea to set up a regulatory apparatus that allows it to review proposed M&A deals for possible threats to national security. But if that regulatory apparatus starts throwing out deals involving telecommunications firms or car manufacturers, the WTO is going to get righteously pissed off. In the US case, the regulatory apparatus Park is referring to is most likely the “Foreign Investment and National Security Act of 2007,” which was set up after previous regulations had failed to flag an M&A deal that essentially put a Dubai firm in charge of all US imports and exports in 6 major US ports – an obvious national security concern. The US doesn’t squabble about telecom, chip manufacturer, car manufacturer (actually the Obama administration actually required foreign acquisition of Chrysler by Fiat in order to allow the company to remain solvent) M&A transactions because the US still believes in a free-market system.

 

So what does Korea need to do to maintain competitiveness? The report, for all its intellectual backwardness, does have some good suggestions for firms concerned about trade secret threats which I echo:

 

1.      Treat your employees better. Reward performance commensurate with its value so that employees are proud to work for your firm and aren’t tempted by illicit offers (which you can’t stop from occurring).

2.      Establish a mechanism by which M&A deals can be reviewed and altered/rejected by the government in cases pertaining to national security. (The report includes technologies in this list, such as automobile and telecom technology which I would think are most likely not key to Korea’s national security. But having a regulatory body in place to make decisions (as opposed to leaving the matter open to the court of public opinion) about what does and does not constitute national security is a smart idea.

 

To this, I would add the following (note that the list for corporations is longer, because frankly, this is a matter to be dealt with by savvy business leaders, not national regulators):

 

1.      For the government:

a.       Fund the hell out of Korean technology and research universities, and demand only the best from all higher level educational institutions.

b.      Vigorously prosecute instances of trade secret theft and punish offenders harshly. Don’t back down from prosecuting Chinese companies and taking such issues up with the WTO.

2.      For companies:

a.       Fund the hell out of employee development programs. Create lucrative incentives for technology employees to be innovative.

b.      Create less hierarchical and more performance-based systems for promotions (kudos to Samsung here, which has done better than any other Korean firm in this department).

c.       Create joint programs with Korean universities to retain Korea’s best talent.

d.      Scout the best talent from foreign firms

e.       Get out there in the market and do your own foreign M&A shopping – that equilibrium can work both ways.  

 

 

According to this piece from Yonhap News, Korean college graduates are pining for part-time work. Work applications from so-called college graduate “white hand” (대졸백수)  candidates (”white hand” is a mildly derogatory term for students who have completed a four-year university degree but have been unable to secure permanent employment) comprised 29 percent of new 2009 applications at Part-Time Heaven (알바천국). A year ago, just 9.93 percent of part-time applicants at PTH had university educations.

 

May in particular saw an extreme increase in the number of college grads willing to work part time with 72 percent more 4-year degree job seeker applications, and 41% more graduate-level applications.

 

While I concede that this trend has certainly been influenced by the global recession as companies are hiring fewer and fewer workers, my take is that this is more evidence of the difficulty strict labor standards places on the work force in general. Archaic Korean labor standards which make downsizing and firing employees extremely arduous force companies to be more picky over full-time employee hires – and they often settle for loyalty over talent.

 

The increase in part time and seasonal work applications also speaks to the fact that companies are hiring part time workers and temporary people who, except for the strict labor standards, would be regular full time employees because labor regulations dealing with temporary workers are more lax.

 

The Korean government and the Korean labor unions need to wake up and see what pain and difficulty they are really causing. The simple fact of the matter is that Korea’s arcane labor regulations hurt companies and employees. Companies are unable to hire the talent needed. Capable workers are unable to get decent employment, and the costs of labor are sky-high.

 

As I’m no Korean law or labor expert, I will leave my opinion at that and refer you to Mr. Brendon Carr, who posts at Korea Law Blog, and has this interesting piece on Korean labor standards. Also check out his free Korea Employment Law FAQ, which I found quite interesting as a foreign expatriate.

 

In related news, the Korea times reports that 58 percent of men and 50 percent of women graduating from Korean universities also bear an average of 7.08 million won ($5,900) in student loan or other debt. These poor kids are hitting the job market at the worst possible moment. On top of that, thanks to arcane government regulations, psychotic unions, and increased competition, the cards are decidedly stacked against new workers. Something has got to give if Korea is going to remain a vibrant economy in years to come. Labor standards must change.