Global environments of doing business in South Korea

Global environments of doing business in South Korea

                Introduction

South Korea is a nation located in the Eastern part of Asia. It is bordered by countries such as North Korea and Japan. It is among the best-performing nations in Eastern Asia and has been improving gradually. Japan is known to be the most developed in East Asia, but South Korea has attempted to strengthen its economic structures so that it can catch up with such a nation. However, the country faces various hindrances while trying to increase its dominance due to North Korea. The country has different challenges and drivers, which influences the investment choices by multiple investors. It has high foreign reserves and account surplus, which encourages foreign investment. However, the country has experienced a slowdown in investment by countries like America and China.

International trade activities

South Korea trades with different nations in the world, including China, Hong Kong, Vietnam, the United States, and Japan. The country mainly depends on services, industries, and agriculture, but the service industry is the most developed. But despite this dominance, the industrial sector in South Korea is also well advanced. In the industrial field, the country produces semiconductors, mobile telecommunications, consumer electronics, automobiles, steel, and chemicals. South Korea is the leading manufacturer of memory semiconductors and displays in the world. South Korea also imports some products such as coal Briquettes, petroleum gas, integrated circuits, and crude oil. It mainly gets these products from the United States, Germany, Japan, and China. The country is among the largest economies in the world.

South Korea emerged as the first nation which recovered quickly from the financial crisis in the world. There was enormous growth in the export market, stimulation of the public sector, and reduction in interest rates. This contributed to the quick recovery. South Korean active integration into international finance and trade contributes to its continued economic development. But due to this, South Korea has been facing challenges because of the worldwide financial crisis.  Additionally, South Korea also faced some challenges in its economy due to the depreciation of the Japanese Yen. At one time, the Japanese government had stimulated the Korean economy, and this devalued South Korean currency. It indicated that Korean products in the market would have higher prices than Japanese products without any alteration in quality. Something like this automatically increased South Korean competitive pressure. Some of the industries in South Korea which were affected by this depreciation included steel, pieces of equipment, and automobile firms. But apart from these industries, other firms in the country never experienced any problem. However, if this depreciation prevailed, it meant that South Korean exporting volume would reduce. Thus, the South Korean economy had to develop from this external shock by moving to an internal economy.

Once it started developing again, the state began withdrawing all exceptional measures which were adopted to curb the crisis. The government-controlled the augmentation of public expenses to stabilize the budget. However, the government still needed to tackle various structural issues which include, the increased household debts, population aging, and an underdeveloped economic market. The crisis was dangerous to the country’s economy means that a change was necessary. The changes in financial policies in Korea led to an improvement in per capita income and a reduction in unemployment rates.

FDI

Due to the recession which occurred in the world, foreign direct investment (FDI) in South Korea reduced significantly. But the country started to recover after this recession due to the focus on the internal economy. The FDIs improved because of the fast economic growth and its specialization in communication and information technology. However, South Korean regulations still lack transparency, and this is a significant concern to external investors. South Korea has some measures to safeguard foreign investments, which include: external remittance assurances, equal treatment of domestic industries with respect to business activities, and provision for tax deductions. However, prohibitions and restrictions still exist in different areas, such as public administration, national defense, and educational organizations.

International Institutions activities

International institutions are the behavioral regularities linked with a set of norms, routines, and rules that can have an informal or formal character. They appear in forms like the international organization and the international treaties with various theoretical errands and missions. Foreign institutions are concerned with multiple activities such as monitoring trend collection of information, delivering services, and aid. They also provide a forum for bargaining and settling disputes, a forum through which different states can work together to achieve common objectives. They help to raise cooperative behavior. South Korea is a country that strives to enhance a collaborative and friendly association with other nations. The activities of international activities which Korea takes part in are divided into the following perspectives

• Political perspective

The United Nations is an example of a political view whose main aim is to maintain international peace and security. It addresses the problems that are threatening to humanity, such as peace and security, humanitarian and health emergencies, and human rights. The UN also helps in promoting a sustainable economic development that brings well-developed social well-being and increases prosperity. It provides and coordinates humanitarian aid, for instance, during natural disasters.

• Financial perspective

An example of the financial institution includes the IMF. The international financial institution helps in the social-economic and economic development programs of nations with developing or transactional economics. They help in providing advice on the development projects, funding, and assisting in the implementation of those projects. The main activities of the financial institutions are to help reduce global poverty and improve the living conditions and standards of the people in various countries. They support the viable economic, institutional, and social development of different countries and also help in the promotion of regional teamwork and integration. They effectively conduct the activities with the help of loans, grants to the national government, and credits. They provide advice to borrowers and research on the development issues affecting the public in various countries.

• Humanitarian perspective such as the NGO

The NGO performs activities such as raising funds for the relief of victims, emergency relief by providing food, health care, and clothing, and also helping to build local capacity to help overcome future disasters. They offer conflict resolution activities like mediation and reconciliation. It undertakes to monitor human rights by identifying any human rights violations, interviewing, gathering information in refugee camps, and the internally displaced persons. It prepares reports, advocacy, and intervention with international monitoring mechanisms.

Natural resources and environmental sustainability

It is essential for every nation to try and meet their present needs without compromising the ability of future generations to meet their needs. South Korea is among the few countries that preserve green growth in its national development strategy. It dedicated approximately 80% of its fiscal stimulus plan to green growth projects such as transportation and infrastructure. It has worked to create new jobs through the implementation of the green growth plan and clean energy technologies. Korea emphasized environmental sustainability to help recover from the economic crisis. South Korea has also committed part of its GDP to help create knowledge and technological base that will help achieve and maintain a green growth economy for generations. Korea strives to build the world’s first nationwide ‘smart grid’ system, to raise the nation’s renewable energy to 12% and decrease greenhouse gas released into the air by 35% by2030.

Korea is currently working toward being the leader in green technology. It works towards building technology that may be helpful, especially to the developing countries who suffer from high losses from storm and other weather-related natural disasters due to inadequate forecasting capability. Building reservoirs and treatment facilities that will help to clean recycle and manage water resources for a good number of people. It will establish water management technology, putting up dams and irrigation channels that will help to improve agricultural production. A well-developed green growth in Korea has highly attracted foreign investment. Investors from foreign countries move to Korea to do business so as to enjoy the opportunities arising due to environmental sustainability. The opportunities such as improved technology play an essential role in the company leading to increased profits and growth of the business.

Political forces

Political forces include economic threats caused by wars, terrorism, and sanctions. In Korea, there have been political forces that have affected international business. The political risks include

• Changes in regulation

The government of Korea could alter its rule and regulation that may disadvantage foreign investment. The law put across, for example, the products to be imported, and the terms of introducing may be harsh to foreign investors, thus discouraging them from investing in Korea. The government of Korea may also decide to increase taxes for all the international business. Increased taxes may lead to losses in business. Government interventions can, therefore, help to grow or discourage foreign investment.

• Political instability

Lack of political stability in Korea discourages foreign investment. The aggressive takeover could overthrow the government leading to riots and looting. It disrupts the business, thus inhibiting foreign investors who would want to incur loses or even closure of the market due to political instability.

• Corruption

Corruption is a barrier to economic development in many countries. Korea has had many cases of increased fraud. So an investor would want to do business with a country where most firms survive by giving bribes to the government officials because the success and growth of the company are not based on value offered to the customer but how much bribe is given to the government officials. Due to increased cases of corruption in Korea, most investors have no confidence in the county and conducting business with their firms.