© 1997 BridgeNews

Korea: Prosperity Now Depends On The Private Sector's Assuming A New Role

By Kook-Hyun Chang of the Federation of Korean Industries and Keith W. Rabin of KWR International

NEW YORK -- The negotiation of an emergency loan package with the International Monetary Fund is a major step and provides a foundation on which Korea can begin to overcome its banking and corporate crisis. The long-term health of the Korean economy, however, will be determined by the ability of the private sector to take on a new role and assume responsibilities handled by government. Economic reform will require the government to continue moving away from its customary role as the primary manager of the economy. This must be reconciled with Korean tradition, which stresses social cohesion and concentrates decision-making among an elite group of bureaucrats.

A CRITICAL ELEMENT will be further decentralization that incorporates a broader range of domestic and foreign constituencies, including management, labor, shareholders and local communities. The pressures of globalization, the emergence of a highly educated middle class and the successful transition to democratic rule require that new mechanisms and institutions be developed. These will generate the national consensus to implement dramatic economic reforms. Many Korean people remain overly preoccupied with domestic considerations. They remain unaware of the importance and inevitability of an economy based upon market principles. This is a luxury that Korea--a relatively small country with few natural resources--can no longer afford.

THE PRESENT economic downturn is unlike those preceding it. It is unlikely to end through an expansion of industrial capacity or the entry of Korean companies into market sectors highlighted for their strategic importance. Rather, it will entail adoption of what the Korea Economic Research Institute has termed a "new economic policy paradigm." This paradigm will allow the capitalization of private-sector initiatives so that "resource allocation can take place based upon market principles." Korea's private sector must rise to the occasion.

AUDIENCES in Korea are very familiar with the word globalization. In 1993, President Kim Young Sam introduced a national "segyehwa" policy that stressed building a global, world-class economy. Yet few Koreans understand the implications. They are ill prepared to face the brutal adjustments and competition needed to survive in a fast-moving global market. Korea's private sector must dedicate itself to promoting a national consensus on sharing the pain and, ultimately, the rewards that will accompany this transition.

A CONTINUING expansion of Korean companies' overseas operations ensures that the actions they take will have an increasing impact beyond Korea's borders. It also necessitates that they view their development from a long-term perspective. Korean companies might be tempted to overcome their present difficulties through an excessive reliance on cost-cutting and production-efficiency measures. But the country's economic progress over the past four decades guarantees that a low-cost strategy is no longer viable. Increased attention to marketing, finance, research and development, investor and public relations as well as public affairs is essential. These steps will let Korean companies build the brands and global operations that will add value and support their development as true multinational enterprises.

A STRUCTURE that recognizes the social obligations of Korean companies is also essential. This will require less hierarchical management structures, greater transparency and a willingness to begin actively communicating with a wide range of foreign and domestic stakeholders. For example, we recently received a call from a small Southern U.S. newspaper wondering how economic turmoil in Asia might impact a Korean company that had announced plans to open a large factory in its city. There was great concern as to whether it would proceed with the plans and how it would operate as a local employer. The company found it difficult to provide the necessary feedback and reassurance. It lacked the management infrastructure and focus necessary to effectively interact with non-Korean media and audiences.

IF KOREA'S economic difficulties can provide the motivation to revitalize its private sector, the turmoil will eventually be seen as a blessing in disguise. Korean companies are being forced to take on a new role and to overcome structural problems that have arisen as a result of unparalleled growth over the past 40 years. The Korean people have always shown a willingness to face up to dramatic change. Over time, Korean companies will rise to the challenge and emerge all the stronger because of it. End

KOOK-HYUN CHANG is executive director of the New York office of the Federation of Korean Industries and KEITH W. RABIN is president of KWR International Inc., a consulting firm based in New York. Their views are not necessarily those of Bridge News.