Brand Confucian

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.

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.