South Korea is an East Asia nation that is found in the southern region of Peninsula (Korea). The geographical location of South Korea makes provide a conducive environment for business. Notably, countries such as China and Japan border South Korea to the east while North Korea borders this country to the north. As such, South Korea is strategically located hence creating conditions that would do businesses to thrive well. In early 20th century, South Korea was regarded as a developing nation. It was full of war and the Gross Domestic Product (GDP) was minuscule. In 1950’s, South Korea was among the poorest countries in the global. It recorded a GDP of $1.5. Nevertheless, since in 1960’s, the state opted to venture into various activities like industrialization to improve its economy (Heo, Jeon, Kim & Kim, 2008).
Since the inception of various economic plans, the country has realized remarkable advancement, which has made people term its economic improvements as “Economic Miracle.” Notably, by 2008, South Korea was deemed as the 13th biggest economy in the global following the implementation of such plans (Heo, Jeon, Kim & Kim, 2008). The country’s GDP in the year 2007 was $949.7 billion. Its GDP per capita in that year was $19,624. Such massive economic improvements rendered the country as the fastest growing economy in the global (Heo, Jeon, Kim & Kim, 2008). Additionally, the country also invites foreign investors to help in improving the GDP of the country. Nevertheless, prior to doing business in South Korea, it is imperative for businesspersons to understand the influence of cultural, economic, demographic, technological, political and natural forces during the process. This paper will discuss how these forces affect doing business in South Korea.
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Forces That Influence Businesses in South Korea
Doing business in South Korea requires the various stakeholders to have insight on the impact that cultural, economic, demographic, technological, political and natural forces will pose to their business. These forces will be discussed under:
Cultural Forces
Just like other countries, South Korea has its unique culture that affects the daily activities of its people. As such, any new company or rather Multinational Corporation that intends to run business in this country needs to familiarize itself with such cultures to operate more efficiently. One of such cultures includes Kibun . This culture governs the way in which people ought to behave. Of essence, it advocates for respect and creating a friendly environment. Kibun operates in tandem with the Inhwa which also nurtures the culture of harmony (Lee, 2012). Under this culture, people are urged to exist cordially by shunning issues related to inequality. Thirdly, there is the principle of power distance and hierarchy in the South Korean culture. This culture requires the older adults to be given some privileges such as initiating activities in a gathering. On the other hand, the minors are expected to bow for the elderly. Ther is also the culture of Confucianism that influences the level of social contact which is also determined by other aspects such as age, wealth, and occupation among others. Nevertheless, there are other cultures involved in business in South Korea such as giving gifts and exchanging business cards with others.
Economic Forces
Currently, South Korea is considered as one the economic power in the global. Over the past three decades, the country has experienced a remarkable economic growth owing to its initiatives to elevate the economic potential of the nation that was initiated in the 1960’s. South Korea is deeply incorporated in the international trade and finance. In 2011, for instance, the country realized a trade that amounted to about 90% of its GDP. Nevertheless, the country is also susceptible to external shocks (Noland, 2012).
In the year 2015, the economic growth of the country stagnated due to what economists’ term as the Middle East Respiratory Syndrome (MERS). MERS-affected the consumption of products and services within and without the country. Nevertheless, the country is positive that this year its economic gains would be realized once again following the increased household consumption as well as the agreements that country has made with countries such as China and Australia. The economic performance of South Korea can be summarized in the table below for the last five years.
| Economic indicators | 2012 | 2013 | 2014 | 2015 | 2016 |
| GDP (USD in Trillions) | 1.20 | 1.31 | 1.41 | 1.40 | 1.50 |
| Rate of Inflation (%) | 2.2 | 1.3 | 1.3 | 0.7 | 1.3 |
| Unemployment rate (%) | 3.2 | 3.1 | 3.5 | 3.7 | 3.5 |
Demographic Forces
South Korea experiences what is termed as population aging (Lee, Mason & Park, 2011). Notably, during the 1950 war that the country suffered, about 551, 000 Koreans (2.9% of the population at that time), were 65 years old and above. Nevertheless, according to a report by the UNWPP, about 12.7% (6.4 million) of South Koreans were 65 years old and above in 2014. The report also demonstrated with the present trend, by 2026, an estimated 20.5% (10.7 million) of the Korean population would be aged 65 years or more. This is an indication that the rate at which the South Korean population was aging was alarming.
Apparently, this is because of the increased life expectancy and reduced birth rates that the country was experiencing. Notably, the life expectancy of the Koreans improved from 48 to 81 years between 1953 and 2014. The birth rate reduced from 38.0 births in every 1000 persons that were recorded in 1953 to 9.1 births per every 1000 persons in the year 2014. The noted trend indicates that the total population of the country is likely to decline in the next few decades (Lee, Mason & Park, 2011). As such, a reduction in population has significant effects on the economy of the country since it will cause a decline in the labor force which on the other hand will reduce the productivity of the country.
Technological Forces
South Korea is one of the nations that are highly ranked regarding technological advancement and innovation. As such, the country has invested heavily in research and development (Chung, 2011). According to a study that was conducted by OECD, it was apparent that 4.29% of South Korea’s GDP is invested in research and development. Such investment has been rewarding for the country. In 2016, for instance, South Korea is regarded as the country that has the most innovative economy in the global. Notably, the key to the success that has been realized in South Korea has been technological innovation. Through their unique innovations, the country has been able to gain comparative advantage in the global market (Chung, 2011). In that respect, businesses that are striving to venture in South Korea need to primarily invest in research and development to elevate their innovative abilities.
Political Forces
Following the appointment of President Park in February 2013, the country has been on the quest of revamping its economy. In the year 2014, the president launched a 3-year economic plan that aimed at improving economic innovation of the country. The plan was termed “Economic Innovation Plan.” Under this plan, South Korea is expected an economic growth of over 4%. It also strives to realize a 70% employment rates and a GDP per capita of over $40,000 (Lee, 2013). The implementation of such plans would see various structural reforms being initiated to meet the target set by the president. First, the plan focused on addressing the debt and tax management issues in different state-oriented corporations. Second, the plan seeks to launch an economy that is creative by embracing innovation. Third, the economic innovation plan strives to reenergize local demand of goods and services by improving various facilities such as the healthcare among others. As such, the government believes by embracing research and development; the country will be able to attain a 4.36 GDP. This is an implication that any business that seeks to set its operations in South Korea needs to meet some of this requirements.
Natural Forces
After the 1950’s war in South Korea, the country indulged in many industrialization activities to boost its economic performance. Notably, during this time, more focus was paid to improving the economy of the country hence little attention was given to the environment. Nevertheless, after South Korea advanced to be a developed economy, it realized the need to protect the ecosystem. This was after it was realized that the various industrial activities posed significant effect to the environment. In that regards, the government set various environmental protection laws so that natural resources would be protected from industrial harm (Chung & Hwang, 2006). In that regards, businesses at different production levels need to adhere to the set laws that restrict their rates of emissions to improve the quality of air. On the other hand, businesses that are industrial oriented need to check the rates of their industrial effluents to water bodies. Concisely, companies need to understand the various laws that protect the natural resources from pollution as well as exploitation.
Conclusion/Request for Action
South Korea has numerous opportunities for businesses to succeed. However, companies particularly the multinational oriented might find it hard to adjust to the business environment in the country. This is true where such companies fail to understand the cultural, economic, political, demographic, technological, and natural forces that apply in the market. As such, it is imperative for a company to understand such factors to realize its objectives.
References
Chung, S. (2011). Innovation, competitiveness, and growth: Korean experiences. In Annual world Bank conference on development economics. The World Bank, Washington DC (pp. 333-357).
Chung, Y. K., & Hwang, K. (2006). The Korean National Strategy for Sustainable Development. In Background report prepared for “Technical Meeting of The Shared Learning and Review of the National Strategy for Sustainable Development of the Republic of Korea,” hosted by Government of Korea and the United Nations Division for Sustainable Development, Seoul, Korea (pp. 2-7).
Heo, U., Jeon, H., Kim, H., & Kim, O. (2008). The political economy of South Korea: economic growth, democratization, and financial crisis. Maryland Series in Contemporary Asian Studies ,2(1).
Lee, C. Y. (2012). Korean Culture and Its Influence on Business Practice in South Korea. The Journal of International Management Studies, 7 (2): 184-191
Lee, M. (2013). "Park Geun-Hye's Election as President of South Korea: Implications for Northeast Asia." Prospect Journal 9, 129-154.
Lee, S. H., Mason, A., & Park, D. (2011). Why does population aging matter so much for Asia? Population aging, economic security and economic growth in Asia. ERIA Discussion Paper Series , 4 , 1-34.
Noland, M. (2012). Korea's growth performance: Past and future. Asian Economic Policy Review , 7 (1), 20-42.
