Recognizing the need for the private sector to lead in developing the skills and expanded public profile that Korea will require as it builds a global economy, the Federation of Korean Industries New York Office (FKI) and the Korean Chamber of Commerce and Industry in USA, Inc. (KOCHAM) retained KWR International, Inc. (KWR), to assess the views of U.S. opinion leaders and to assist in developing an expanded outreach program in the United States, Korea's primary export market.

The following report draws upon quantitative and qualitative data developed from an in-depth survey of over 200 U.S. opinion leaders. The quantitative phase of the survey was implemented during July-August and the qualitative phase during September-October of 1996. In addition to measuring the perceptions of the overall audience and monitoring relevant media coverage, KWR prescribed individualized themes and activities that Korea-related organizations might implement to meet the specific concerns of the three groups targeted by this survey. These include:

• Business, Government & Academia: Individuals with a macro-focus on issues and those who can influence U.S. and corporate policy toward Korea;

• Trade & Industry: Individuals with a micro-focus on issues and those who may conduct business with Korean companies; and

• General Public: Consumers of Korean products and individuals who influence U.S. public opinion, with a primary emphasis on the media.

The FKI/KOCHAM opinion leader survey begins with an overview that defines the difficulties currently facing Korea. Korea's strong Confucian tradition, hierarchical respect for authority and shared cultural values proved tremendous assets in developing a strong export-oriented capacity. Having managed the transition to becoming a major force in light industry in the 1960-70s, Korea underwent a painful restructuring to develop a strong capability in heavy industry during the 1970-80s. Korea is now seeking to maintain growth through the development of a global economy. Unlike the previous transitions however, which focused on developing large-scale manufacturing processes utilizing domestic labor, the homogenous nature of Korean society may no longer provide it with a clear advantage.

Globalization requires that Korean managers will spend less time in the future dealing with production and technical issues and more time managing abstract issues including marketing, public affairs, labor, community and investor relations and training and skills development. These are not areas in which Koreans have traditionally excelled. Pressure from Korea's trading partners and upwardly mobile Korean consumers ensures the domestic economy will continue to liberalize -- whether Korea is ready or not. Further steps are therefore necessary to facilitate the move beyond export-led growth, and to develop the skills and expanded public profile that Korea's economic achievements now demand.

Survey data revealed a wide range of conclusions illustrating different aspects of Korea's "image problem". Although attitudes were generally positive, Korea remains an enigma in the eyes of most U.S. opinion leaders. Few individuals, including those who had extensive dealings with Korea, expressed any real confidence in their awareness of Korea-related issues. Knowledge of the Korean business sector was particularly low. Perceptions of Korea lag far behind reality. In question after question, it became clear the audience did not realize Korea's full economic potential. Respondents were asked questions to gauge their views of: 1) The Korean Nation, 2) The Korean Business Community and 3) The Korean People.

The Korean Nation

The image of Korea revolves around its economic capabilities. While opinion leaders recognized that the nation has become a significant economic power, there was far less awareness and confidence in Korea's commitment to liberalizing its domestic market and adopting principles of free trade. The comments of a trade analyst were typical: "Telecom, automobiles and semiconductors are only a few of the many trade issues involving Korea that are coming onto the radar screen in Washington. .... These pressures will continue to grow ... and Korea will have to do a much better job in communicating its ... story to the American public."

Korea's economic prospects were ranked higher than other emerging and developed economies, yet opinion leaders tended to undervalue Korea's relationship with the United States. Many respondents were unaware that the U.S. has a trade surplus with Korea and that the nation is the fifth largest trading partner of the United States.

The Korean Business Community

Opinion leaders perceived a need for Koreans to upgrade their management practices to meet the needs of a more service-oriented economy. Similarly, many respondents perceived a lack of diversity in the structure of Korea's economy. Attention was focused on a relatively small number of business conglomerates, and the need for Korea to stronger small- to medium-sized enterprises was emphasized. While Korean firms are seen as being highly competitive in a wide range of sectors, they were also viewed as being far more competitive in production and operations than in marketing and services.

In terms of labor relations, Koreans were perceived to be hard people to work for. U.S. opinion leaders also stated that they found it difficult to connect with -- and to relate to -- Korean businessmen. Despite these problem areas however, there was a definite interest in expanding relations between Korean and U.S. firms. This interest varied depending on the form of the relationship. For example, opinion leaders rated Korean firms as being far more attractive for their ability to act as export platforms and manufacturers, than as potential partners in R&D and marketing. Similarly, Koreans were seen to be strong competitors in emerging markets, though opinion leaders were divided on whether partnerships are feasible between Korean and U.S. firms.

Opinion leaders thought that Korean firms had a long way to go to build strong brand identities. Few opinion leaders were able to identify any Korean brand names. While Korean products are seen as improving, they were primarily valued for their competitive pricing. Many respondents continued to identify low-tech products with Korea. More significantly, few were aware of having purchased a Korean product.

The Korean People

Opinion leaders expressed a strong admiration for the Korean people. The audience was almost unanimous in their characterization of Koreans as hard-working people. However, Koreans were not seen as easy-going or open, and several respondents thought that Koreans need to "loosen-up" and to be more flexible. Most personal relationships with Koreans were formed through business. Respondents also viewed the Korean War as a highly positive factor in their impressions of the Korean people, contrary to the views of many Koreans.

An overwhelming majority of respondents indicated their interest in learning more about Korea. Follow-up interviews emphasized personal relations and broad cultural understanding. Personal relations and written sources of information had the most influence on audience perceptions. However, respondents indicated there are many potential vehicles to deliver information on Korea.

Audience Characteristics

With regard to the specific groups, Business, Government & Academia (BGA) were the most informed when answering questions addressing macro-oriented concerns. They were more optimistic about Korea's future and the Korean people than other audience components. At the same time, they were less informed about micro-oriented issues, (i.e., those dealing with Korean companies and products). BGA's impressions of the Korean business community appeared to be slightly dated, suggesting the need to inform U.S. policymakers of current developments in Korea's economy. The underlying optimism of this group bodes well for future outreach efforts and can be utilized to influence the perceptions of other groups. Although, moderately interested in learning more about Korea, BGA expressed the most interest in learning through written sources.

Trade and Industry (TI) respondents were consistently the most informed, especially about issues concerning Korea's business community. Their views, however were mixed, combining admiration for Korea's achievements with real professional experiences that tempered their optimism. In particular, TI identified a lack of trust between U.S. businessmen and Korean firms. Yet, TI was the most interested in learning more about Korea, through a combination of sources that emphasized both personal interactions and written sources.

The General Public (GP) possessed the least awareness and lacked even a basic familiarity with Korea-related issues. Their limited knowledge often translated into the lowest assessments and the largest number of null (no rating indicated) responses. This pattern existed throughout the survey. Having the least contact with Koreans, the GP tended to form opinions through the media, rather than through personal relationships. Although the least interested in learning more about Korea, they were receptive to information from a wide variety of sources. Lacking a clear image of Korea, their low level of awareness nevertheless represents a foundation that can be built upon.

Korea's Perception "Deficit"

The main implication drawn from the research was that Korea needs to confront its public image to rectify the growing "perception deficit" that has resulted from the dramatic difference between Korea's economic achievements and the awareness of external audiences. This deficit is increasingly problematic given Korea's continuing economic growth. All audience components showed much less awareness than expected, even those who had extensive interactions with the country. Whatever the reason for this lack of awareness, it is clear the "gap" between Korea's achievements and awareness is growing with each passing year.

Imagining Korea's economic achievement as "supply" and public awareness as "demand", the graph below depicts supply and demand at relatively equal levels in 1960. At that point Korea was "priced" fairly with awareness approximately in line with achievements. Since then, Korea's real GNP has risen exponentially, tripling each decade. At the same time, its public image has made a relatively slow linear ascent. Korea has thus become progressively "undervalued", with more serious consequences (e.g., the higher capital and transaction costs that inevitably accompany inefficient communications) for its economy and business community.

Over the last ten years, Korea's continuing growth and the significant rise in overseas activities and investments by its firms have caused the gap to widen even further. Korea has begun to pay a far more serious price for this growing perception deficit. External audiences are becoming increasingly important and thus the need to raise the "valuation" of Korea is even more critical. Foreign media and opinion leaders now hold Korea to a higher standard. They have vastly higher expectations and are no longer prepared to make the allowances they once made when Korea was a newly industrializing nation.

Increasing trade and economic growth make a higher profile inevitable -- whether or not it is perceived as desirable. Future growth requires that Korean firms will continue amassing assets all over the world. This generates a corresponding need to develop an expanded level of awareness. More intensive outreach efforts must be implemented to address the growing perception gap -- otherwise Korea and Korean firms will have to accept the consequences.

A Balanced Structure is Essential

Korea-related organizations must however, balance more intensive outreach within a framework that pays adequate attention to the strategic, organizational and promotional concerns of individual organizations. A balanced approach is essential to moving beyond traditional public relations programs, which tend to focus on message delivery and outwardly oriented promotion, without paying adequate attention to organizational, technical and strategic concerns.

An integrated approach seeks to balance these dependent factors within an integrated structure, in an effort to advance the concerns of the client in a sustainable manner. Media outreach must promote messages and themes that promote the real strategic objectives of the client organization. Without appropriate emphasis on identifying strategic goals and messages, effective outreach and promotion can prove counterproductive and cause real damage. Similarly, an organization must have an infrastructure in place to handle the demands generated through effective outreach. Otherwise it will not be able to properly service it’s targeted audiences. Each of these external focuses must be balanced through effective management and integration.

Raising Korea's public image will require effective planning and the identification of evolving priorities over the long-term. Building on the overall theme stressing the need to confront Korea's public image, specific objectives were developed to meet the needs of the

three audience components. These include:

• Build Awareness (BGA): Driven by BGA's outdated perceptions of Korean products and Korea's economic and corporate capabilities;

• Build Trust (TI): Driven by the need to convince U.S. businessmen they would be wise to dedicate more time and resources to following, and to interacting, with Korea-related entities; and

• Build Familiarity (GP): Driven by the need to address the near total lack of awareness within the GP and to instill a basic familiarity with Korea-related issues among the GP.

FKI/KOCHAM, Korean firms and Korea-oriented organizations have a major task ahead of them. This survey has successfully identified the problem of Korea's "perception deficit". It is now up to the private sector to move forward to help lead in efforts to correct this lack of awareness and to facilitate the nation's move toward a global economy.

This will not be easy. As an industry association executive observed, "My impression is that Koreans love to study these kinds of issues without necessarily committing to action." Korean entities must resist the temptation to over-analyze these issues, and must instead move toward addressing the real challenge of implementing measures that will help to address these critical issues.

The quantitative and qualitative data assembled for this survey gives every indication that the Korean people are up to this task. Throughout their long history, the Korean people have overcome adversity and challenge to effect positive change. The Korean people clearly possess the resiliency, capacity and resources necessary to overcome the obstacles they are now facing as they expand their economy and their commitment to a national globalization policy.

Overview:

Today Korea is at a crossroads, entering a new phase in its economic development. In 1993, the incoming administration of President Kim Young Sam launched the "Five-Year Plan for the New Economy" emphasizing a national policy of segyehwa or globalization. Through segyehwa, Korea has expanded its multilateral relationships. However, it has also opened Korea's economy to increased scrutiny and to potential criticism from outsiders. This represents a real challenge, requiring that Korea move beyond the well-defined, inward-oriented tradition that has helped it to advance to where it is today.

Korea's success has been based upon years of sacrifice & discipline.

By virtue of their geography and history, the Korean people have — by necessity -- developed a strong, insular culture that has allowed them to survive and prosper. Situated between China and Japan, with Russia less than 500 miles away, the Korean people have inhabited a relatively small, densely-populated area for over 5,000 years, fortifying their sense of national identity and drive for success. These cultural strengths have allowed Korea to advance from the world's second-poorest country to its eleventh-largest economy over the past forty years. This remarkable feat was achieved through a single-minded dedication to hard work, with a devotion to education and an adherence to Confucian-style order and discipline.

Korea's national economy has gone through two previous transformations since the country was devastated during the Korean War in the 1950s. Korea's first economic plan was launched in 1962. Government planners defined a number of "target" industries and offered incentives to focus businesses on utilizing low-cost Korean labor in export-oriented, low-cost manufacturing operations. This sector still accounts for 30% of Korean exports.

The HCI initiative drew upon Korea's cultural strengths.

By the early 1970s, rising wages and increased foreign competition created the need to reduce Korea's dependence on labor-intensive products. Implementing a top-down reorientation, in accordance with Korea's Confucian tradition, the government declared a need to shift to a more sectorally-directed strategy targeting heavy and chemical industries (HCI). The donor and foreign financial institutions that provided capital for Korea's economic development were not interested in assuming the large risks inherent in such a bold move. Ultimately, the fierce determination of the Korean people prevailed. Today, the WTO characterizes South Korea as having "one of the most dynamic economies in the world". Korea is now a world-class competitor in petrochemicals, primary products, construction, shipbuilding, automobiles, semiconductors and industrial and precision machinery.

Korea's current dilemma arises out of its success.

While the conglomerate strategy succeeded brilliantly, transforming Korea into a major economic power, weaknesses have emerged requiring that Korea once again reevaluate its economic strategy. Having developed a world-class manufacturing capability, Korea has seen its real GNP triple over each of the past three decades. This has caused domestic wages to rise dramatically and eroded the cost-competitiveness of its domestic industry. This is true not only in low-tech sectors such as apparel and shoes (that began moving offshore over twenty years ago), but with higher-tech and larger-scale industry as well. With growing competition from lower-wage countries such as China, Thailand and Indonesia, Korean firms no longer have a clear price advantage.

Korea has also become dependent on building a continually expanding export base. The relatively small size of Korea's domestic market ensures that over the long-term, Korea will never -- even if it totally liberalizes its domestic economy -- absorb the same quantities of imports as its larger trading partners. As a result, Korea must maintain growth by enhancing relations with its traditional trading partners -- expanding commercial ties regardless of business conditions and political environments. This has made Korea increasingly vulnerable to external pressures. It also requires that Korean businesses diversify, by entering new markets, technologies and sectors, and (as one policy analyst described it) by "exporting its trade deficit" -- moving more production overseas.

Decreasing cost-competitiveness and a reliance on exports -- underlie the need for Korea's national segyehwa policy.

To maintain their cost advantage and to feed a continual growth in export volume, Korean firms must adopt a more globalized approach. Significant moves have already been made in this direction, and Korean firms now actively compete in emerging and mature markets throughout the world.

Globalization will require a fundamental restructuring of the Korean economy. This is needed to make Korea more competitive and less vulnerable to external pressures. These changes are more fundamental and even more challenging than those endured during the turbulent HCI years of the 1970-80s. Over time, government and managers will increasingly be held accountable by an expanding range of Stakeholders (i.e., consumers, equity shareholders, local communities, educational institutions, employees, etc.). As these groups will be less willing to sacrifice their individual interests for a common good, it is critical that outreach and communications be utilized more effectively to strengthen relations with these increasingly important internal constituencies.

Internal pressures are contributing to the demand for globalization.

Globalization has highlighted the need for Korea to deregulate its economy. There has been growing international pressure to open Korean markets. Yet, the pressure for deregulation also has its roots at home. Increasing education and rising wages have helped to develop a growing middle class with more sophisticated tastes and desires. Demand for leisure and recreational activities, as well as general consumption, are rising. The changing demand of Korean consumers has increased imports, which, in turn, compounds inflationary pressures and Korea's already rising current account deficit. In the short-term, more emphasis will likely be placed on resolving capital imbalances through further increases in Korea's already burgeoning trade with other nations. This will result in even more pressure by foreign trading partners to liberalize Korea's economy, further constricting the ability of Korean firms to use domestic profits to subsidize overseas activities.

U.S. opinion leaders believe that Korea is still a closed market.

While it is recognized that Korea has made substantial progress, U.S. opinion leaders tend to believe Korea remains a closed market. A leading U.S. executive, speaking on his company's expanding operations in Asia, recently observed that Korea had presented the most obstacles for his firm. It had taken the company eight years to obtain necessary licenses and approvals in Korea. By comparison, China had appeared to be free and open. Similarly, recent pronouncements from Seoul discouraging luxury imports are also seen as contradicting Korea's stated aspiration to build a free, global economy. As one U.S. government official commented, " ... they are making progress, but they were the hermit kingdom for thousands of years and it will not change quickly. .... They have to keep plugging along ... Korea cannot talk about free markets and keep their own closed .... These are small industries. Word gets around fast and Korea's reputation is damaged."

The private sector must lead in developing the skills, relationships and profile needed to maintain global competitiveness.

Many analysts studying Korea's economy have pointed to the need for Korea to nurture the small to medium-sized businesses that tend to provide flexibility and to lead advances in innovation. More productive small to medium-sized businesses would introduce a greater flexibility and creativity into the system. This would allow for the manufacture of a greater range of industrial parts and intermediate goods, which Korea must now import from overseas. It would also reduce pressure on Korea's current account.

While this problem has been recognized, much of the rhetoric emanating from Seoul has focused on using regulatory tools to "constrain" Korea's conglomerates in the belief this will promote the growth of small- to medium-sized firms. Other statements encourage the adoption of legislation that will require the conglomerates to focus on core businesses and to "give- up" areas where they have been uncompetitive. However, Korea's conglomerates have been the engine of its economy for over forty years. They represent a primary asset and further growth is dependent upon their continuing success. It is essential that all actors understand that cooperation between large and small firms makes good competitive sense. It must, however be encouraged through the development of market mechanisms and voluntary measures that appeal to self-interest, rather than regulatory solutions based upon artificial barriers and constraints.

Ultimately, the success of Korea's segyehwa initiative will be measured by its ability to develop a private sector that possesses the skills, capabilities and flexibility needed to compete on a global scale. While government can play an important role in promoting change, the ultimate responsibility for this transformation will have to be borne by the private sector. The private sector's active participation, involvement and support is essential every step of the way.

Globalization requires a new approach to Korea's relations abroad.

The added expense and overhead of expanded international networks requires that Korean firms add additional value to raise gross margins. Fixed and intangible assets (i.e., production facilities, market share and trade relationships) must be defended and developed through more effective marketing, communications and outreach. As Korean firms have traditionally focused on increasing profitability through cost-reduction and greater economies of scale, this will not be easy. Korean firms will have to move beyond the production of OEM (production of goods manufactured under another brand name) and intermediate goods. This will necessitate more effective marketing and service-oriented capabilities to build the consumer franchises needed to support an effective globalization strategy. The higher profile inherent in a move toward branded goods and larger overseas investments also requires sensitivity and skills in areas where Koreans have not traditionally excelled.

The homogeneity of Korean society is no longer a clear advantage.

Unlike the HCI experience, which focused on large-scale manufacturing processes utilizing domestic labor, the homogenous nature of Korean society no longer provides a clear advantage as Korea moves toward the adoption of a globalization strategy. Korea's strong Confucian tradition and shared cultural values proved tremendous assets in developing a strong export-oriented capacity. However, these values do not easily translate beyond Korean shores or to the demanding requirements of an information-based economy that places a higher premium on knowledge and services. Globalization requires that in the future, Korean managers will spend less time dealing with production and technical issues and more time managing abstract issues including marketing, promotion, public af fairs, labor, community and investor relations and skills development. Senior managers will find themselves less able to "rule" from Seoul, issuing commands to far-flung overseas operations. They will be forced to pay more careful attention to the unique requirements of local markets, suggesting a more decentralized management structure. This will require entrusting decision-making to in-country managers who can nurture key constituencies and manage a firm's interests on the local level. In many cases the individuals best suited for these positions will not be Korean.

Is Korea's microeconomy capable of managing this transition?

Pressure from both Korea's trading partners and upwardly mobile Korean consumers ensures that Korea's domestic economy will continue to liberalize -- whether Korea is ready or not. Further steps are thus necessary to help facilitate the development of the skills and public profile that Korea's economic achievements now demand. Having enjoyed the protection of a relatively closed domestic market for several decades, many Korean firms are ill prepared to accept open competition. Every effort must be made to prepare Korean firms to compete against foreign competitors inside and outside Korea -- without utilizing non-tariff barriers and other artificial mechanisms that contribute to inefficiencies and that exacerbate growing tensions with Korea's trading partners.

Korea-oriented organizations can help to unite the Korean private sector in pursuit of these objectives.

Recognizing the need for the private sector to lead in developing the skills and expanded public profile necessary to facilitate Korea's transition to a global economy, the Federation of Korean Industries New York Office (FKI) and the Korean Chamber of Commerce and Industry in USA, Inc. (KOCHAM) retained KWR International, Inc. (KWR) to assess the views of U.S. opinion leaders and to assist in developing recommendations to contribute to more aggressive and more comprehensive outreach efforts in the United States, Korea's primary export market.

The following report details the results of a research project measuring the opinions of over 200 U.S. opinion leaders, and is aimed at helping FKI/KOCHAM, Korean firms and other Korea-oriented entities to explore these critical issues in greater detail.