The Korean Economy: The Challenges of FDI-led Globalization

by Wan-Soon Kim & You-il Lee Publisher: Edward Elgar Publishing Limited

Korea only realized the full importance of inward foreign investment after the economic crisis of 1997. This book seeks to offer a deeper understanding of Korean globalization efforts and how the government’s stance on foreign direct investment (FDI) has shifted through the years. It highlights the need for fundamental changes at all levels of society in order for Korea to truly benefit from economic integration with the wider global community. 

The authors organized the book into six sections, beginning with an overview of how Korea’s FDI, almost non-existent between the 1960s and 1980s, began to rise in the early 1990s. The next section provides qualitative insights on how the overall attitude towards inward FDI in Korea has been affected by specific social relations (political and institutional) and the drive towards industrial capitalism, using academic literature ranging from neoclassical economic explanations to Marxist analysis. The authors detail how the Korean elite, while pursuing FDI with the help of initiatives such as Free Economic Zones (FEZs) and the Korea-US Free Trade Agreement, have moved away from the mercantilist, export-maximization paradigm of the past towards embracing the notion of “FDI-led globalization” as a strategic imperative. 

What follows is a discussion of Korea’s growing integration into the global economy via major reforms undertaken in the 1990s. Through the use of eight case studies, the authors clearly present how FDI has influenced the state, business firms, labor unions, human relations and other social actors. 

The book continues to evaluate the Korean government’s inward FDI policies since the 1997 financial crisis and examines the challenges facing Korea’s drive to attract FDI. The authors believe that what they see as Korea’s nationwide distrust of the “foreigner” and “foreign” is an economic disadvantage. The book ends with conclusions and the authors’ recommendations. 

The argument of this book is that the inconsistencies and shortcomings of the state’s FDI regime, together with the public’s historic antipathy towards foreign domination, is preventing Korea from being a truly open, market-driven, dynamic economy. 

“Of the main obstacles to inducing FDI into Korea, such as militant labor unions, unpredictable tax administration, excessive regulatory regimes and an inconvenient living environment, it is the prejudice against foreign companies and the associated fears of imperialism that are most daunting.” (Pg 154) 

Besides offering their own views, the authors also present a rich array of perspectives gleaned from interviews with Multi-National Companies (MNCs) operating in Korea. 

Of particular interest is the chapter on “The Paradox of Korea’s Globalization”. The chapter provides cultural and institutional insights based on findings from a survey about the perceptions of the Korean government’s FDI-driven globalization, conducted among 47 CEOs of foreign companies operating in Korea. It is interesting to note that more than 91% of the respondents do not believe in the realization of Korea’s ambition to become a business centre in the Northeast Asian region. This is because of the anti-globalization forces in Korea. Koreans were seen to be reluctant to accept foreign influences due to their sense of national pride. Other perceived challenges of operating in Korea include labor unrest, excessive regulations, inconvenient living conditions and an unpredictable tax environment. Respondents believe that foreign companies are subject to frequent governmental scrutiny. Despite the unfavorable conditions, however, respondents agree that they would encourage other foreign companies to invest in Korea due to the size of the Korean economy and its growth potential. 

The article on chaebol (South Korean business conglomerates) is fascinating. It describes how chaebol received state protection and preferential treatment from the Korean government as long as they reacted favorably towards the government’s policies. To a certain extent, the authors likened the President of Korea as the chairman of ‘Korea Inc.’ with business groups acting as its production units. It was cited that the relationship between the government and the chaebol in Korea has historically been vertical and hierarchical. 

Although the book deals comprehensively with Korea’s business environment from the perspective of foreigners, it lacks detail on the background to what is claimed to be Koreans’ negative attitudes towards foreign companies operating in Korea. Such analysis would provide a multi-dimensional perspective on the issue and offer more concrete recommendations. The book also treads lightly on the benefits of investing in Korea. From a practitioner’s standpoint, more insight on critical success factors for companies operating in Korea would have been welcome. 

Nevertheless, this book provides the reader with more than just a peek at the realities and social impact of FDI in Korea. It is recommended reading for international firms considering investment in one of Korea’s Free Economic Zones, as well as students of the economic and social impact of FDI in general.