Business Prospects in South Korea and Political Environment (Research Paper Sample)

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Business Prospects in South Korea
Introduction
South Korea, like other Asian countries, has been an economic success story since the years of the great recession. The country that straddles the southern end of the Korean Peninsula on the Eastern Part of Asia bristles with a population of over 50 million people huddled in just about 3,600 square miles. The country boasts a Gross Domestic Product (GDP) of about $1.7 trillion (about $33,200 per capita), putting it among the wealthiest countries in the world.
The country’s tremendous economic growth has been heavily reliant on the country’s exports, seeing that it is home to a number of manufacturing powerhouses such as Samsung Electronics and Hyundai Motors. The exponential economic growth of the country can be attributed, in no small part, to the tremendous economic freedom enjoyed by both local and foreign investors. Several other factors have contributed to South Korea’s remarkable economic status and have made the country a hotbed for investment.
The country shares a border on the Northern end with North Korea that has been on a war footing since its Northern counterpart seceded in 1948. Tensions in the Northern border have always been a source of concern for investors in the country. However, in the recent years, relations between the Koreas have warmed up as the countries work on demilitarizing their common border.
South Korea’s economic freedom has been formalized through several enabling trade agreements, legislation and an environment that favors fair competition. However, corruption has eaten back significantly on the gains that South Korea has made. In spite of its commendable economic profile, this vice has hampered maximal economic growth. Another challenge faced by Korea is its rigid labor market that not only undercuts competitiveness but also leads to large scale unemployment.
Political Environment of South Korea
The republic of South Korea is one of the most advanced democracies in the world. Since the first free democratic elections that were held in 1987, the country’s governance systems have been advancing democratically. South Korean’s have enjoyed high civil liberties, and a fairly strong rule of law.
The country is a constitutional democracy that has been hailed as one of the most advanced in the world. The separation of powers among the three branches of government – the executive, legislature and judiciary – ensures a proper balance of power and check of government excesses. Elections are held every five years and the president is allowed only one term. This frequent change of guard ensures that presidents act pragmatically and attempt to achieve their goals within the shortest time possible.
The domestic environment of the country is quite politically stable, making it easy for foreign capital to make an impact in the country. South Korea’s democratic tradition is an additional advantage because it offers longer-term prospects of political stability. Countries such as Taiwan, by comparison, enjoyed relative peace under authoritarian leadership until the 30-year long Nirvana was rudely interrupted by a civil war in 1977 (Gereffi 11). Foreign investors can, therefore, place their confidence in a relatively domestic future in South Korea.
There is a considerable challenge, however, with external stability. Flanking South Korea to the North is its bellicose neighbor, North Korea. The Korean War in the mid-twentieth century left the two countries in deep distrust of each other and as a consequence Korean inhabitants live with the constant threat of conflict between the two countries looming large. In recent times, however, there have been efforts to demilitarize parts of the border. The Kaesong Industrial Complex has a railway system that was created with the hope of increasing movement between North and South Korea across a demilitarized section of the border. The industrial complex has, among other things, led to a reduction in labor costs in the South (Yoon 939). This is partly because of the ability of workers from the North to cross over to the South where the wages are averagely higher than the North. This can be taken as a green light for investors.
The political environment in South Korea has been particularly favorable towards conglomerates and other international businesses. To understand South Korea’s exponential growth, one needs to look back into mid-twentieth century when president Park Chung took power. With a background in military training, he led South Korea from economic impoverishment and set it firmly on a path of growth with authoritarian principles. Park’s government encouraged private investment by guaranteeing loans to private companies called chaebols. During the 1997/8 financial crisis, president Kim Dae Jung revitalized the chaebols viability by forcing them to put more emphasis on core operations and cultivate international competitiveness (Cavusgil 239). The government of South Korea thereon developed a tradition where successive regimes continued to support international businesses and have thus made the South Korean economy heavily dependent on international trade, particularly exports.
Legal environment of South Korea
The legal system of South Korea is that of Civil law as it was heavily influenced by European civil Law. South Korea has pursued several legal avenues to ensure that the country has as much economic freedom as possible. Laws shaping the course of foreign investment in South Korea are laws that affect property rights, labor freedom, trade freedom and investment freedom. Several other laws may have a direct or indirect effect on the course of foreign investment in South Korea.
The main law governing foreign investment in South Korea is the Foreign Investment Promotion Act (FIPA). This act has several provisions guiding foreign investment. Of over 1,100 industrial sectors, 31 remain closed to foreign investment with 13 being closed permanently and 18 partially. Some of the fully closed areas of investment include nuclear fuel processing and food crop cultivation. Electricity generation, passenger and goods transportation and carriage respectively are areas that are only partially closed. Indeed, the Act has attempted to maintain a very delicate balance between ensuring as much freedom of foreign investment as possible and promotion of local investors.
Another provision of the act is that it allows for notification of government by the potential foreign investor rather than seeking consent from government. This may prove vitally important in order to eliminate government bureaucracies during seeking permission for establishing an investment. Under FIPA, establishment of a foreign investment would follow three simple steps. First, the investor would have to fill a report on foreign investment. This they would do with a foreign exchange bank. Secondly, they would have to incorporate and register it with the registry office of the court. Finally, they would also have to register it with a competent tax office. After completion of these three simple steps, the foreign investor would be ready to begin operations.
Indeed, FIPA has streamlined the establishment of foreign investment companies by abolishing several bureaucracies and setting up simple procedures which would shorten time required for registration. FIPA has also relaxed several restrictions and increased incentives by providing several tax breaks (Nicolas et al. 14). In this way, FIPA has encouraged several foreign investments.
The supreme court of South Korea ruled December 2013 that bonuses paid on a regular, uniform and fixed basis to employees should be regarded as ordinary wages. Since additional compensation of 50% or more is required for overtime, nighttime or even holiday work, this court ruling would affect negotiations between employers and labor unions or even representatives of employees (Lee). The implication of this would be two-fold. Potential investors would have to calculate the capital to be invested in human resource differently, and the employee pool would be increased because of seemingly better wage conditions conferred by the ruling.
South Korea’s rating on property rights is reasonably good with a property rights index of roughly 70 per cent. This gives a measure of how robust the laws that protect property rights are in South Korea and further how well they are implemented. Intellectual property rights are protected in the Republic of Korea using a system that incorporates copyright, customs recordal, Trademarks, Patents, utility models and industrial designs. All these are enshrined in Korean law and may be enforced through mediation, civil action or criminal prosecution.
Economic environment of South Korea
Korea’s economy is based mainly on exports. The country has scarce natural resources and a domestic market that is quite small, so it is heavily dependent on exports. The economy of South Korea also shifted from being labor-intensive to being technology-intensive. As a member of several international organizations, the country has been able to forge several free trade agreements with countries with huge consumer markets. Its Free Trade Agreement with the United States, for instance, has made the U.S the second largest consumer of Korean products.
Several economic factors favor international business in South Korea. The inflation rate has averaged about 7% for almost half a decade, and the highest was in 1980. In 2015, it has fluctuated between 0.4 and 0.9%, signaling a good environment for international business. With housing, water and fuel as the main determinants of consumer price indexing in the country, workers and expatriates in South Korea enjoy relative stability ...