Essay | Is Korea’s Economy Up or Next?
With the American economy in turmoil, by some accounts the worst financial meltdown since the Great Depression, one can only wonder what the impact will be for overseas Americans like me: a recent college grad, a non-homeowner, and twentysomething American teacher in Seoul. Is now the best time to be abroad, or are the woes of Wall Street headed this way too?
A snapshot of the Korean economy, and despite the gloom in the media, we can clearly see several recognizable corporate players are quite busy these days.
Samsung, Korea’s largest electronics giant, is on a global march selling its products–but that’s not news. It was reported in MarketWatch that they have entered into continuing talks with SanDisk with a $5.85 billion buyout offer–in cash! SanDisk is a memory chip manufacturer with unique patent and intellectual property that Samsung badly wants in order to save hundreds of millions in royalties.
In a little piece of market irony, I found this quote from a Lehman Brothers analyst commenting on Samsung as they mulled buying SanDisk during its period of falling share prices:
“If Samsung succeeds in acquiring SanDisk at a reasonable price, this will be positive for both the overall memory market as well as for Samsung,” C.W. Chung, an analyst at Lehman Brothers told the Wall Street Journal. “We may take this type of M&A activity as a signal that shows the memory market has reached its bottom (in terms of prices).” — full article here
Unbeknownst to the Lehman analyst, a similar situation was brewing in the financial markets with his own company. The Wall Street Journal reported that in early September, just weeks before this week’s domino implosion, the Korea Development Bank offered to purchase the ailing investment firm Lehman Brothers. In perhaps one of the finance world’s biggest fumbles, Lehmans CEO Richard Fuld rejected KDB on the grounds that surely they were worth more. Over the past weekend Lehmans found out they were worth a lot less as liquidation began. This has either left KDB disappointed at their almost-Wall Street coup or hugely relieved that they avoided disaster. Expect KDB to try again, reminiscent of Japan Inc. during the 80s, to buy up pieces of Wall Street prestige at garage sale prices.
What about Korea’s other big chaebol, Hyundai? Working off of the huge success of their sleek new flagship luxury brand, the Genesis, the auto division is on the march to new territories. It was reported to be in the works in Brazil, setting out to build a $600 million plant there. Depending on who you ask in the States, the affordable Genesis may edge out Mercedes-Benz and BMW on the merits of its better fuel economy alone (compare fuel efficiency here). That is to say, if anyone in America is in the mood for buying a luxury car right now.
Closer to home, in my field, the hagwon industry’s largest players are doing better than ever. English language and test prep education firms have begun to consolidate their advantages dealing with recent changes in immigration policy, which makes it more difficult for small competitors to recruit. But teaching Korean children English is not the only profitable game in town. Some education corporations are strategically matching their methods with cost competitive teachers in the Philippines to test and develop their online education portfolio. I would not be surprised to see Korean firms reaching out to teach kids English all over Asia before the decade is out.
As an overseas American in Seoul, I tend to think that business is good. I am earning a healthy income, working in a secure industry, and I almost feel that the sound of presidential candidate John McCain’s dissonant, “The fundamentals of the economy are strong” gaffe (see video) would get more nods here in Korea than in the States.
But here is the catch, so that this essay doesn’t sound all naively rosy about the economy. While Korea’s economy appears to be on better footing than the U.S. (really, whose isn’t these days), it goes without saying that the world economy is so intertwined that the panic of fear can easily introduce chaos into the Korean markets and repeat the Wall Street drama. Overnight any one of the companies doing well in Korea can also become a Lehman (pronounce it like “lemon” and you have a pun going).
The fundamental weakness that the markets need to resolve is short term greed, and this problem exists globally. It was widely reported that the people steering the corporate titans had been blind to their worsening situation; neglectful of negative information coming plainly through the ranks and the media; overvalued their companies’ prices (to the point of arrogance); and they were much too eager to march toward their yearly bonuses regardless of hell or high water. It didn’t work. And Korean companies can learn a thing or two about such corporate maladies at the top.
It reminds me of the book by business psychologist Mihaly Csikszentmihalyi, called Good Business. In it he describes the “one hundred year manager,” a management philosophy that not only places great value into the long-term life of a company, it also aspires for excellence through the purposeful development of its people and organizational complexity.
In light of AIG, the largest American insurance giant on the chopping blocks, I was reminded of another company mentioned in the book. The Italian insurance giant Assicurazioni Generali has been around for a staggering 250 years! Compare that with the average lifespan of successful companies being around 30 years, and you will know which side of growth American companies have stood.
I think AIG is falling down simply because it was fixated on pushing stock prices upwards. CEOs and managers in many industries have tried to please their shareholders by making the companies grow larger through M&A without actual efforts at making the companies grow better at their businesses.
Optimists will argue that this is just what Joseph Schumpeter termed creative destruction, as the market experiements and re-invents iteself toward success. I think that this generation of CEOs have perverted that concept by weaving together bloated corporations that are not creative, so much to the point that they become destructive. Like a house of cards, once collapsed, people may wonder whether the strategy of greed and catering to fickle market prices was right even once.
Here’s a quote from page 17 of Good Business that resonate even more these days:
Business need not follow slavishly the rule of greed and expedience when it conflicts with more important goals such as product/service excellence, employee development, and serving the needs of the customer, the environment, and market in which the company exists. Over the past decade since the dot-com crash, have companies from the auto industry to big pharma to insurance to finance been focusing on the right goals?
Modern, capitalist Korea, only halfway towards a century old, has a modern economy a little more than three decades old. It remains to be seen what choices top Korean CEOs have made in the search for profits and wealth. Have they thought about their employees? The environment? How to build a company that will last for a hundred years and not just till their retirement? Thirty years is a telling mark, and the next year or two will be revealing.
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