[OUTLOOK]Tiger States in the Shadow of Elephants

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[OUTLOOK]Tiger States in the Shadow of Elephants

With the giant shadows of India and China looming over Asia's economic horizon, will Korea's fortunes over the next 20 to 30 years be eclipsed?

This question was recently posed by two writers on the pages of the International Herald Trib-une, sister paper of the JoongAng Ilbo English Edition. H.D.S. Greenway suggested that "elephant economies" with huge populations are learning to manage them, and will soon profit from economies of scale. Ronnie C. Chan forecast that China, with strong, reform-minded leadership, is on course to put not only smaller East Asian "tiger" economies in the shade, but also the U.S.

Interesting theories - but don't write Korea off yet. The record of the last 50 years demonstrates that Korea has learned not only to survive, but thrive - by taking advantage of global trade. Obviously, Korea cannot compete demographically with India or China. But Korea has the advantage of a homogeneous population, with no ethnic or religious minorities represented in national politics. Poverty has been virtually eradicated. Furthermore, Korea is, unequivocally, democratic. These socio-political factors make Korea probably the most socially stable nation in East Asia.

Can we say the same for China and India? China faces a huge de-velopment gap between coast and hinterland. Social forces (ethnic and religious groups, the rural unemployed) show divisive potential, and the government, mindful of China's chaotic history of provincial warlordism, appears unwilling to relax control. China has never experienced free market economics, nor opened to the world. India is democratic, but beset by religious intolerance. Poverty remains a challenge.

As a business location, Korea scores well. An internationally competitive old economy is running in tandem with a surging new economy. Over the next few years, B2B initiatives should spur significant productivity increases.

The nation's small size is a positive: Transport and technology infrastructures can be used nationally. Improvements are under way in business and financial practices. Korea is home to a major consumer base (currently, America's second market in Asia after Japan). The population is highly educated, tech-savvy and culturally conditioned to hard work. Global quality-of-life surveys also show Korean improvements. The reforms emplaced after the 1997 financial crisis, while imperfect, were lauded as Asia's best.

Geographically, Korea can take advantage of her ancient weakness - the invasion routes of the past lie at the crossroads of Northeast Asia. Incheon Airport and Pusan Port grant Korea significant hub potential in a region forecast to produce 30 percent of world economic product by 2025.

North Korea is the wild card. With a population of 22 million, and nowhere to go but up, it offers long-term potential as a manufacturing base, transport hub, and - eventually - consumer society. The question is how international society will deal with Pyong-yang's awkward appearance on the world stage. If the landing is soft, the North offers much. If hard, the South faces crippling social and financial burdens.

Korea must run to keep up. Shanghai is already positioning itself as Northeast Asia's financial center. "Although China's GDP per capita lags far behind Korea's, Korea needs to recognize that the top 10 percent of China's population, say 100 million people, is advancing rapidly," says James Rooney, financial and business strategist and president of Market Force, Inc. "This represents advanced human capital that is over twice the size of Korea's population. It is this leading edge that you are competing with - not the rural masses." Korea needs to rapidly improve her capital markets, regulatory mechanisms and entrepreneurial climate to compete. Labor flexibility and productivity need to increase. Foreign investment must be welcomed. Trade diversification is essential, and Free Trade Agreements desirable.

The rise of the Asian giants is a strategic challenge for Korea, but also an opportunity. Expanding economies equal expanding trade, and there is synergistic potential in the Korea-India-China axis. Geographically and culturally, Korea is well placed to take advantage of China as manufacturing base and trade partner. Hong Kong and China are Korea's second and third largest investment destinations after the United States. "Korea must play its role to the hilt in adding value, while recognizing the risks and finding a way to make the relationship a win-win" says Mr. Rooney.

Korea's high-tech backbone and globalizing population mean that Korea can and should access India as a software outsource. "Korea lacks software designers and maybe software development technology," says J.K. Choi, president and general manager of Hewlett Packard Korea. "But it has great strength in systems integration. ... [This synergy] has huge market potential."

Size is not everything. Korea has a unique opportunity to forge ahead. Continuing reform and solid leadership should ensure that Korea can take her place in the sun.


The writer is the research and publications manager at AMCHAM Korea.

by Andrew Salmon

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