By Asian Assets Direct Staff Posted by Permission of Asian Assets Direct, Published, June 2, 2000

WASHINGTON - In the minds of U.S. opinion leaders, South Korea can be roughly equated to a highly-promising "growth stock," according to a new survey commissioned by the Korean Chamber of Commerce and Industry in the USA Inc. and the New York office of the Federation of Korean Industries.

However, this means that "even a small disappointment in performance can have dramatic repercussions over the short term;" the report says. It was prepared by KWR International, Inc., a New York consulting firm, and released Friday.

KOCHAM and FKI have commissioned the annual survey since 1996. The latest one reaffirms earlier findings of a growing gap between Korea's economic achievements and the perceptions of U.S. audiences.

Korean firms and institutions must strengthen their efforts to engage in the "corporate diplomacy" needed to manage the expectations of foreign audiences in a realistic manner, according to the report.

It argues that "this will serve to minimize market and perception volatility and to maintain an equilibrium between these expectations and Korea's future economic performance."

Whether those expectations and perceptions are fair or realistic "is beside the point," the report argues. "They clearly exist in the mind of U.S. opinion leaders and therefore affect Korea's cost of capital and its ability to maintain its global competitiveness."

'Outdated' business model

In particular, U.S. opinion leaders regard Korea's business model -- forged by government and large conglomerates and honed during years when manufacturing boomed -- as outdated.

The report quotes a New York-based senior attorney as saying, "The chaebols must decide how to advance beyond a strategy that seeks to do business globally from a Korean base to make the concerted global acquisitions of financial, human and other resources needed to become competitive multinational corporations."

Seventy-four unidentified opinion leaders took part in the survey. They urged that:

The dismantling of chaebols that has followed the 1997-98 financial crisis be followed through with decisive and demonstrable progress toward international standards for accounting, banking and corporate finance. Bankruptcies be resolved more quickly. Korea's employment system be overhauled.

Respondents acknowledged that Korean firms have demonstrated impressive efficiency, many recovering from near-death, but argued that labor protections, or rigidities, will thwart competitiveness in the long run.

"While favorably crediting Korea's remarkably rapid recovery from the 1997 financial crisis, U.S. opinion leaders now judge Korean businesses with higher standards than in the past," KOCHAM President Young Man Kim said in a statement. "They stress that ...Korean companies need to adopt a higher benchmark if they are to maintain their long-term competitiveness."

The sentiments and recommendations in the report echoed calls made by the American Chamber of Commerce in Korea earlier this year and, this week, by the Organization for Economic Cooperation and Development. The U.S. Treasury had lobbied for Korea's OECD membership as a way to encourage capital markets liberalization in the country.

Survey respondents included executives (11 percent), journalists (22 percent), academics (5 percent), attorneys (14 percent), government (5 percent) and nonprofit officials (3 percent), consultants (5 percent), financial professionals (16 percent), engineers (3 percent) and analysts (16 percent).

All the respondents were Americans working in the United States, Asia or Europe or English-speaking foreigners working for western firms.

Reprinted by permission of Asian Assets Direct