Korea's Pubescent Economy Readies for Change
Korea's Pubescent Economy Readies for Change
  • Tim Alper
  • 승인 2008.12.26 12:48
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Puberty, if you are not too old to remember it, was not much fun. Suddenly, within the space of a few days, you probably went from being a happy, energetic child to being a moody, spotty teenager who felt that the whole world was against you. Looking back on it now, at the time it was probably a terrible experience, but a necessary one. The lessons you learned then may have turned you into a sensible, responsible adult. The Korean economy has just hit puberty - it feels confused, frustrated, and is struggling to discover exactly what it really is. For sixty years, protectionist economics have ruled Korean financial policy, as this country has successfully pulled itself out of the global gutter and into the exclusive "First World" club. Protectionism is a direct import from Korea's closest allies, the United States, who successfully used this economic theory to pull themselves out of the financial quagmire they called "The Great Depression". At its core, protectionism is a growth-based economic principle that effectively closes the door to foreign imports, while allowing exports to flow freely out of the country.

 

And protectionism has been a golden ticket for Korea. In just over half a century, Korea has magically transformed itself from a nation of impoverished farmers to a bustling, hi-tech country that ranks as the 11th biggest economy in the world. Its high-tax barriers keep foreign competitors out of the Korean market, which provides the perfect growing conditions of limited competition and a loyal domestic market. However, with the exception of a few of the mighty chaebols, Korean companies are not doing well enough abroad. Most of this country's exportable goods and services are forced onto the already-saturated local market. It is time to change. Protectionism only allows a national economy to grow so far. Its limitations are starting to become all too clear in Korea, which is feeling the effects of the global recession as badly as any other country in Asia. Already, the Free Trade Agreement (FTA) with the USA has seen certain tax regulations lifted, and a proposed EU-Korea FTA will see yet more holes picked in the mosquito net of state-led Korean tax buffering.

 

Companies are starting to realise that if they rely only on Korean customers to buy their products, they will never grow beyond a middling size, and could collapse easily if the economy hits the dire straits that it did back in the times of the IMF bailout in 1997. 1997 was a disaster for many people in Korea; successful small business owners saw their little empires crumble as the bottom fell out every sector of the market. And with Korea's current model of protectionism, there is nothing to really stop similar periodic crises from striking repeatedly, with each one setting back the Korean economy ten years. What Korea needs to do now is to stop talking about globalisation and start actually doing it. Companies here have been mollycoddled for too long. They are allowed to grow in an environment unpolluted by foreign competition. When they reach a medium size, they start looking around for foreign buyers, but discover, for the main, that nobody is interested in their product abroad.

 

Why is that For a start, it would help if products were designed with global, rather than domestic targets in mind. "Who am I going to export to"- this question should be item one on the agenda of every wannabe CEO in the country. For the most part, now it is just an afterthought. But even in these harsh economic times, there are some encouraging signs that Korean companies are starting to see the light. The Samsung Economic Research Institute says that Korea's economic growth may fall to just over 3.5% next year, while government figures from the Ministry of Knowledge Economy have confirmed that high street spending is down some 9% from last year. However, even in such bleak times, the online computer games business is thriving in Korea. Latest industry figures show that video game exports from Korea are worth around $900 million. Only this time last year, this magazine was reporting Korean online games producers saying that they "had to go global or face extinction". Now, it seems, they are doing the former in spades.

 

Nexon, one of Korea's biggest online computer game makers, last month released their "Combat Arms" title in America, where "MapleStory" is already enjoying some success. "KartRider" is another hit game from Nexon that is starting to infiltrate the Chinese market. NHH has seen a 30% boost in sales in Japan, while the continued success of titles like NHsoft's "Lineage" series and JoyMax's "Silkroad" continue to gain popularity in the lucrative Greater Asia market. Indeed, countries like China, The Philippines and Indonesia represent gigantic potential markets for Korea. They are also countries where Korea has a headstart in trade wars against Europe and America. As much as Koreans like to distance themselves from the Chinese, Oriental tastes in video gaming are fairly uniform, and the geographical distance between Seoul-based gaming companies and swarming metropolises like Beijing, Manila, Jakarta and Shanghai is relatively small.

 

A lot of Koreans are worried about the competition offered by bigger, more powerful computer game companies, the likes of Japan's Sony, and America's EA, traditionally console and PC game market leaders, who look like they are on the verge of releasing big name online titles. This summer saw American companies release titles like "Goal Line Blitz", an online American Football management simulator, and other inventive titles are starting to trickle out, with Japanese companies doing the same. However, Korean companies are still breaking the mould. "Combat Arms" is totally free to play. Its makers earn a profit through online player transactions, which is a massive coup, and makes the game seem much more attractive to potential gamers. Big companies from other countries are still behind the times with such ideas.

 

In addition, although big players like EA, Sony and their like may well enter the online gaming fray, this does not have to spell the death of Korean online gaming. Being a small, diverse and inventive company is a massive advantage in the world of online game production. While bigger companies are more resistant to any form of change in their unwieldy business models, smaller companies can move much faster with the times. By no means should the online game market be a one-off, either. This section of the market is leading by example at the moment, but it does not have to be Korea's only non- Samsung/LG success story. But Korea's online game makers are starting to realise the power of thinking globally. They can see that the Korean market is not only saturated, but it is also unstable. Protectionism must die. Online games makers have realised this, and it is time for other IT businesses to follow suit. Increased competition has made Korean gaming companies stronger, and the FTAs will force other businesses here to get their acts together too, or go under. Now is the time for Korean economics to go through puberty. It might mean that new Korean companies experience a rougher ride thanks to the increased competition from abroad, but so be it, if the prize is full entry into a global market. There is nothing fun about puberty, but if it brings about maturity then surely it is worth going through.


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