PESTLE analysis of South Korea

1. PESTLE ANALYSISDinesh Kumar.
JitendraTiwari.
Kunal Divyanshu.
Nabil Ahmad Afifi.
Naga Raju Nandivada.

2. POLITICAL ANALYSIS

3. REPUBLIC OF KOREA (SOUTH KOREA)
(DAEHAN MINGUK)
GDP (PPP): $2.029Trillion PER CAPITA (PPP): $39446.
GDP (NOMINAL): $1.498TRILLION PER CAPITA (NOMINAL): $29114.
HDI: 0.901 (18th rank) LIFE EXPECTENCY: 81YEARS.
Population: 50.4 Million AVERAGE WAGES: $ 32400.
Corruption perception index rank: 52 OUT OF 176 COUNTRIES.
GlobalTerrorism Index (2016): 112 out of 130 countries.
KOF Index of Globalization (2017): 29 out of 207 COUNTRIES.

4. POLITICAL TIMELINE
 South Korea is a sovereign state in East Asia constituting southern part of Korean peninsula and its adjacent
islands.
 Occupied by Japan after Sino-Japanese war in 1910, achieved independence from Japan’s Imperial rule on
August 15th 1945 as Unified Korea.
 In 1948 Unified Korea is divided into two entities North Korea & South Korea. In the south, Syngman Rhee was
appointed head of provisional government by USA.
 On June 25th 1950, North Korea invaded South Korea, resulting into Korean War, 1953 armistice created a
250km long 4km wide Demilitarized Zone.
 Syngman Rhee was forced to resign in 1960, on the charges of autocracy and corruption. A period of political
instability followed, until Park Chung-Hee took authority in 1961 after an successful coup.

5. CONTINUED..
 Although being criticized as a Military Dictator, his tenure oversaw, rapid export-led economic growth, he
was assassinated in 1979.
 In the sudden political void General Chun Doo-hwan seized power and exposed martial law, his despotic rule
ended in 1987 and country shifted towards pro-democracy form.
 Subsequent governments worked towards economic and social upliftment with policies like Nordpolitik,
Sunshine policy etc. in action.
 The Miracle on Han River refers to South Korea’s period of rapid economic growth (1961-1997), until it was
adversely affected by Asian Financial Crisis.
 Kim Dae-Jung was president from 1998-2003, he was awarded Nobel Peace prize in year 2000, subsequent
decade witnessed political stability and growth.

6. IN THE 21ST CENTURY
 Amidst global recession of 2008, Lee Myung-bak, former CEO of Hyundai E&C, took charge of presidency.
Government policies and strong infrastructure made recovery smooth.
 However, preferential treatment towards Chaebols, for e.g. presidential pardon for Samsung Chairman, Lee Kun-
hee, in tax evasion charges, irked major criticism.
 Chaebols are global conglomerates, typically global multinationals with numerous international enterprises,
controlled by large family controlled corporate groups.
 Since the inception of the chaebols, government sees their functioning as crucial to Korean economy, which also
has adverse effects on political conduct, in forms such as, bribes funneling, abuse of power, lobbying etc.
 In 2013, Park Geun-hye, was appointed as first female president of the state, her tenure remained quite turbulent
and she was impeached on March 10th 2017.

7. CONTINUED..
 The course of her presidency oversaw dropping approval ratings, and criticism when her top aide was
found to make improper gains through influence peddling.
 The impeachment resulted into suspension of her presidential powers and duties, on May 9th 2017, Moon
Jae-in was elected as 12th president of South Korea.
 Amidst recent controversies, the recently elected government is expected to hold much transparency and
answerability towards the nation.
 Lately, the heir apparent of Samsung, Lee Jay-yong was convicted for 5 years of prison term, in charges
related to tax evasion and embezzlement of funds.
 The ever hostile neighbor North Korea, proactively developing its artillery and warfare, plays important
role in governance scheme and policy making.

8. SUMMARY
 The political system in South Korea has seen many transitions varying from dictatorship to pro-
democratic forms of governments.
 South Korea is an important member of global bodies such as UN, WTO, OECD and blocs such G-20,
ASEAN plus three etc.
 South Korea enjoys good diplomatic and trade relations with major countries, one of the reason being
the export driven form of economy South Korea has.
 However relations with North Korea are almost always hostile, frequent disagreements also occur with
Japan, mostly because of their pre-independence atrocities.
 The country is going through political rebuilding phase, a strong and transparent form of government is
needed to regain the trust of international community on political front.

9. ECONOMIC ANALYSIS

10. OVERVIEW OF SOUTH KOREA’S
ECONOMY
 Economy: 4th largest economy in Asia, 11th largest in the world.
 Type: Mixed economy dominated by family-owned conglomerates called chaebols.
 Currency: Korean Won
 Trade Organizations: APEC,WTO, OECD, G-20
 GDP Annual growth rate: 3.60%
 GDP by sector: Agriculture(2.6%), industry(39.2%), services(58.2%)
 Main industries: Electronics,Telecommunications, automobile, chemicals, shipbuilding, steel
 Surplus Economy with a stable credit rating
 Ease-of-doing-business rank(2017): 5th.
 Abundant labor with high level of literacy.
 Relatively equal income distribution.

11. SOUTH KOREA'S RAPID
ECONOMIC GROWTH

12. ECONOMIC POLICIES
 Policies -Timeline
 (1960-80s) Adaption of export-oriented strategy  Heavy and Chemical Industries
Drive(HCIs).
 (1981-1997s) Stabilization policy, Market-oriented reforms(phasing-out of policy loans,
interest rate deregulations, etc).
 (1997-2000) 1997 Financial Crisis and swift recovery.

13. KEY DRIVERS OF GROWTH
 High investments in Education  Rigorous education system  High quality workers and Entrepreneurs 
Technology boom
 Adoption of Export-oriented growth policies
 Strong leadership commitment (Effective monitoring, strong initiatives, sensible performance criteria etc.)
 Development of ICT industry(hardware)  more network penetration  better communication  global leader in
consumer electronics, mobile broadband and smartphones.
 Heavy and Chemical Industry Drive  Development of Steel, Shipbuilding, machinery, electronics, chemicals
industries

14. CURRENT SCENARIO
 Achieved a solid growth post-crisis.
 Current Account Surplus hit record highs in 2015 and continuing positively till date. Forex reserves are also increasing
rapidly.
 Debt-Equity ratios dramatically decreased and corporate profitability improved
 NPL Ratio(Non-performing Loans) substantially reduced.

15. FUTURE CHALLENGES
 Potential growth rate slowing down and expected to continue to fall down.

16.  Household Debt burden: Aggregate household burden in 2015 = $973 billion.
 Household debt/GDP ratio = 77%

17.  Increasing household debt means consumption decreases

18. OTHER CHALLENGES
Weakened National competitiveness
Youth unemployment
Inflexible labor unions

19. SOCIO-CULTURAL ANALYSIS

20. SOCIO-CULTURE
Religions in South Korea Ethnicity in South Korea
Christian(Protestant 24 % Roman Catholic 7.6%)
Buddhist
Other Unknown
None

21. DEMOGRAPHICS
 One of the world's most densely populated countries.
(425 people/square km)
 Rapid Urbanisation
from 35.8% in 1960 to 88.5% in 2002
 Increasing by approximately 800,000 a year.

22. FERTILITY
 Low Fertility
 1.24 Children per women.
 Security healthcare to those parents who both working increased.

23. AGES AND WAGES
 Ageing Society
 People above 65 will be 40% of
the total population in 2060.
 After 2030 Population will be
Decline.
 MinWage is (5.8$) or 7530 Won
per hour in 2017
 Set to increase 16 % in next
year
Pros:
• Large Number of PeopleWilling to Join.
• Continuous production, and a consistent output.
• Infrequent layoffs.
Cons
• Labor Unions Resistant to the rising wage disparity.
• Rising Power of Labor Unions.

24. HOFSTEDE CULTURAL DIMENSIONS

25. HOFSTEDE CULTURAL DIMENSIONS SCORES
 Power Distant- At an intermediate score of 60, South Korea is a slightly hierarchical society. This means
that people accept a hierarchical order in which everybody has a place and which needs no further
justification.
 Individualism- A score of 18 is considered a collectivistic society. This is manifest in a close long-term
commitment to the member 'group', be that a family, extended family, or extended relationships. Loyalty in a
collectivist culture is paramount, and over-rides most other societal rules and regulations.
 Masculinity- Scores 39 on this dimension and is thus considered a Feminine society. In Feminine countries the
focus is on “working in order to live”, managers strive for consensus, people value equality, solidarity and quality
in their working lives.
 Uncertainty Avoidance- At 85 South Korea is one of the most uncertainty avoiding countries in the world.
Countries exhibiting high Uncertainty Avoidance maintain rigid codes of belief and behaviour and are intolerant
of unorthodox behaviour and ideas.
 Long Term Orientation- At 100, South Korea scores as one of the most pragmatic, long-term oriented
societies. Notion of the one and only almighty God is not familiar to South Koreans. People live their lives guided
by virtues and practical good examples.
 Indulgence- With a low score of 29, South Korean society is shown to be one of Restraint. Societies with a low
score in this dimension have a tendency to cynicism and pessimism.

26. SOCIAL ETIQUETTES
Do’s
Greetings short bow and a smile.
Formal Bow is Hard Bow
Most of the Korean people drink Alcohol.
Respect Business Card.
Don’t
Do not Hug.
Put hand on Shoulder.
Just sit anywhere.

27. TECHNOLOGICAL ANALYSIS

28. THE PAST
 Post war development of South Korea is one of the most remarkable economic stories of 20th century.
 In early 1960s GDP of South Korea was equivalent to the GDP of Ghana.
 now 11th largest economy and one of the major trading countries of the world.
 In mid 1960s government focus shifted thus it supported technological upgrading of domestic industries. Institutes like
KIST and MOST were established to carry out and support R&D which was followed by Science and Technology
Promotion Law. In 1970s R&D tax credits were introduced.
 In 1980s Government targeted the core technologies that would lead to Korean economic growth rather than passively
supporting industry’s technological demands. Addition to public funding for R&D , private sector was encouraged to
engage actively in absorbing and improving technologies.
 In late 1990s government extensively supported ICT and creative venture companies.
 In 2003 government initiated an extensive innovation oriented drive in all sector of economy mainly targeting 10
industries like digitalTV and displays.
 Since 2008 Ministry of Commerce, industry and energy is renamed as Ministry of knowledge economy, searching new
sources of growth such as Green growth.

29. NETWORK READINESS INDEX
BUSINESS USAGE
 Capacity for innovation – 24*
 ICT use for business-to-business transactions – 34*
 Business-to-consumer Internet use – 10*
 Firm-level technology absorption – 27*
GOVERNMENT USAGE
 Importance of ICTs to government vision to the future - 17*
 Government online service index – 3*
 Government success in ICT promotion – 11*
 By World Economic Forum -Technology Readiness Index: Measures propensity for countries to exploit the
opportunities offered by ICT
SpeedTest Global Index
 Mobile – 9*
 Fixed Broadband – 3* *rank among 139 nations

30. GLOBAL INNOVATION INDEX

31. WHAT'S GOING ON
 Promoting structural adjustment and new approaches to growth
 The new Creative Economy Initiative, Korea has renewed its bio- and nanotechnology strategies.
 The government also aims to develop future leading technologies in drugs based on natural substances by increasing
investment in R&D for new drugs.
 Encouraging business innovation and innovative entrepreneurship
 Korea’s BERD was 3.36% of GDP in 2014, at the top of theOECD ranking. Large manufacturing conglomerates are the
main performers of business R&D, with SMEs and young firms playing much smaller roles.
 The Creative Economy initiative focuses on supporting start-ups and building SMEs innovative capacity by consolidating
existing schemes and the share of R&D investment going to SMEs increased from 12.4% in 2011 to 18.0% in 2015.
 Fostering sustainable/green growth
 South Korea has been at the forefront of green growth initiatives and aims to be a hub for global green growth.
 The 10Year EnergyTechnology Development Plan (2014-23) has a budget of USD 20 billion PPP to assist in the creation
of a new energy industry and innovation ecosystem. Part of this is establishing a new R&D system in terms of supply-
demand convergence, encouraging the commercialization of technology.

32. CORE STRENGTHS
Robust telecom sector
 world's highest broadband internet subscription rate
 introduced the world's first commercial wireless broadband (WiBro), satellite digital media
broadcast (DMB), and telephonic-DMB services.
Presence of large global and domestic players
 world's sixth largest automobile producer, and ranks first in DRAM semiconductor
manufacturing, and LCD production.
 mobile phone producers Samsung Electronics, LG Electronics and Pantech are among the
world's largest mobile firms.

33. FUTURE CHALLENGES AND RISK
 Disturbed neighborhood
 Brain drain
 Rising R&D costs
 Added to high wages and strict labor laws, the cost of maintaining an R&D center is rising.
 Foreign companies pulling out of the country
 favorable attitude towards investments into R&D, there is a lot of local hatred against foreign companies
 In January 2007, chip maker Intel Corporation announced closure of its R&D center in South Korea
 Over-regulated governance
 With more and more markets opening up, there is a growing need to reduce restrictions, various
business procedures and processes

34. FUTURE PROSPECTS
 Government policies promoting R&D
 formulated favorable policies to encourage foreign firms to locate their research centers in the country
 policies are focused on developing new growth engines and making industrial improvements
 As part of these efforts, the South Korean government implemented the "Free Economic Zones Act" to
improve the business environment
 Growing R&D centers
 As of September 2005, the total number of foreign investment R&D centers reached 901, including 137
corporate R&D centers that are wholly owned by foreign investors.
 Commercialization of new ideas
 South Korea is known for its high technology innovation and is also very quick to implement ideas,
resulting in a very small time gap between innovation and commercialization
 High technology exports contribute almost 9% to GDP every year. This shows the consistency of the
process and also a low turnaround period

35. LEGAL ANALYSIS

36. OVERVIEW
The South Korean judiciary is based on the US and German court systems and juries
are not present during trials.
The country also has an exclusive constitutional court, which keeps a check on
government decisions and law making.
After becoming a member of the OECD, South Korea gained the status of a developed
country and it provides one of the most attractive regulatory incentives for industrial
development among the OECD nations
The country earns a very large income from exports, which makes it an attractive
destination for FDI.
However, procedural delays and hostility towards foreign investors act as a
discouragement.

37. INTRODUCTION

38.  Regulatory incentives-
 Among all the OECD countries, South Korea offers foreign investors some of the best incentives in the south
east Asian region.
 In addition to offering major financial incentives, the Free Economic Zones (FEZs) of Incheon, Gwangyang,
and Busan/Jinhae are committed to creating an international business and living environment.
 Favorable tax policies
 At the end of 2005, some 264, or 53%, of the corporations listed in the Fortune Global 500 had invested in
South korea
 An exclusive constitutional court
 The constitutional court of South Korea was established in 1988, and is designed to protect the people's
fundamental rights and effectively check governmental powers.
CURRENT STRENGTHS

39. Absence of juries -The South Korean legal system does not have juries; instead the court
is composed of one or three judges who hear cases.
Inefficient customs operations
 Imports into South Korea have to undergo a long drawn out procedure in order to clear
the customs department. This customs clearance involves nine stages and each stage has
internal procedural loops
Weak IPR enforcement
IPR protection issues have raised international concerns, which can prove to be an
impediment to the country’s initiative to enhance FDI inflows. Moreover, the US has kept
South Korea on its IPR "watch list" for 2008, but the former expects that the Korea-US free
trade agreement will lead to significant improvements in IPR protection.
CURRENT CHALLENGES

40. Judicial system similar to the US and Germany- The South Korean legal
system is similar to that of Germany and the US. For instance, the South
Korean constitution was established in 1948, and was influenced in part by
the US legal system.
Advantage of tax abatements and tax treaties for FDIs- In South Korea,
foreign investors can apply for tax abatements, and once procedures have
been followed, investors can claim tax reductions. The tax treatment is
carried out at different levels of government priority.
FUTURE PROSPECTS

41.  Judges quitting for private practice - One of the problems for the South Korean legal system is
that many competent judges and prosecutors have left their jobs to start their own private
practices, usually for economic reasons.
 Low rate of students clearing the law examination - Law school graduates have to pass the
Korean Bar Examination, which is considered one of the most competitive examinations in the
country. About 1,000 people pass among the 25,000 that take it every year.
FUTURE RISKS

42. RANKING OF THE COUNTRY
1.Effectiveness of law making bodies
2.Law relating to ICT’S
3.Judicial Impedance
4.Efficiency of legal framework in settling disputes
5.Efficiency of legal framework in challenging regulations.
6.Intellectual property protection
7.Software piracy rate
8.Number of procedures to enforce a contract.
9.Time required to enforce a contract

43. RANKING RANK - COUNTRY - VALUE

44. ENVIRONMENTAL ANALYSIS

45.  South Korea has modest natural resources.
 South Korea’s high emission levels are a cause for concern.
 Government policies and directives on environmental development have lead to the formation
of national eco parks and environmentally-friendly technology.
 National parks cover 6.6% of the country's total area, and are typically located in mountainous
or coastal regions. Most forms of development are prohibited on this protected land.
 Lacking clear direction, South Korea’s environmental policies fall into the bottom ranks (rank
37) in international comparison. (Sustainable Governance Indicators).
 Public transportation use is growing, but cars are still given planning priority.
 A progressive use-more, pay-more electricity fee system helps restrain household use, but
does not apply to companies.

46. FACTUAL FINDINGS
 South Korea signed the Paris climate agreement in 2016. It has pledged to reduce greenhouse
gas emissions by 37% till 2030. It is one of the few states planning to expand the use of nuclear
power.
 In the 2016 Yale Environmental Performance Index, Korea was ranked 80th out of 180 countries
overall, falling to just 173rd place in terms of air quality.
 About half of the most problematic fine airborne dust comes from the industries of coastal
China.
 In the OECD’s 2016 Better Life Index, South Korea was ranked at 38th on the air pollution
indicator, last among the countries included.
 The Global Green Growth Institute (GGGI) of Government of South Korea supports the efforts
of developing countries to design environmentally friendly policies, Green Climate Fund (GCF)
was established in 2012 to fund these activities.

47. CURRENT CHALLENGES
 In South Korea, high mountains cover 80% of the land, making it unusable for farming and
agriculture.
 Natural resources in the form of plants and ecology are widely missing in the country, which
makes the country highly dependent on agricultural imports.
 The disappearance of the forests has been a major cause of soil erosion and flooding.
Infrastructural development and increased requirement for wood is exacerbating the problem.
 North Korea constructed Imnam dam very close to the DMZ in 2003. Sudden uniformed release
were done by North Korea in 2001, 2002, and 2007, which created flood like situations in the city
of Seoul.
 This presents a probable environmental risk for the country. Though the country has in response
constructed the Peace dam against the possible flood release.
 With more than 500 million tons of carbon dioxide emissions (on an annual average basis), South
Korea is one of the largest producers of CO2 in the world.

48. FUTURE PROSPECTS
 This prevalent higher emissions level enhances the environmental risk of the country, which may
subsequently dent approval of new industries in the country.
 South Korea is also the 9th largest consumer of ozone-depleting chlorofluorocarbons (CFC’s).
Contributing heavily to the environmental damage.
 This ascertains a future risk for the country’s environmental front, and will soon lead to
international pressure to reduce emissions levels.
 The Ministry of Environment has been making a focused investment into the R&D of major
environmental technologies, IT, Biotechnology and Environmental technology are considered as
core industries for strategic national development.
 The South Korean government has developed environmental management guidelines to make
businesses environmentally friendly. Products are certified with eco-labels.
 A 10 year plan to calculate a green GDP for establishing an integrated environment-economy
account is also under implementation in South Korea

49. INDUSTRY & ENTRY
MODES ANALYSIS

50. GREEN GROWTH
According to International Center for Climate Governance,
“Green Growth is the means by which the current economy can make the
transition to a sustainable economy. It involves promoting growth and
development while reducing pollution and greenhouse gas (GHG) emissions,
minimizing waste and inefficient use of natural resources, maintaining
biodiversity, and strengthening energy security.”

51. WHY GREEN GROWTH?
As a consequence of its accelerated economic growth, South Korea’s emissions almost
doubled between 1990 and 2005.
South Korea imports 96% of its energy requirements in which 40% is coal pollution. So
it wants to reduce its energy dependence by creating new drivers for growth.
Citizens demand to have a better standard of living.
Aim to become global leader in lo carbon technologies

52. NATIONAL STRATEGY FOR GREEN
GROWTH(2009-2050)
Aims to
1. promote strategic R&D and commercialization of NRE technologies
2. create new market to stimulate industrialization of NRE field.
3. facilitate export industrialization.
4. strengthen growth potential by providing infrastructure building for private sectors
working in NRE technologies fields

53. HIGH-POTENTIAL INDUSTRY-
NEW AND RENEWABLE ENERGY SECTOR(NRE)
The South Korean government prioritized the following ten strategic-energy technologies in order to support and invest
in their Research and Development (R&D).These technologies are:
1. High-efficiency Photo-voltaic cells
2. Fuel cells
3. Advanced nuclear power
4. Green cars
5. Smart grid
6. Advanced carbon capture and storage(CCS)
7. Water treatment
8. Rechargeable batteries
9. LEDs
10. Green IT

55. ENTRY MODE – JOINT VENTURE
Strengths:
1. Highly skilled workforce.
2. Advanced R&D capabilities
3. High quality infrastructure.
4. Brand savvy customers willing to spend on quality customers
5. Strong shipping and air cargo infrastructure makes the country a great hub for expansion into other markets.
Weaknesses:
1. Frequent contract negotiations throughout a business relationship are common
2. Regulatory frameworks can be restrictive and opaque
3. Unique industry standards

56. FDI
Main weakness is South Korea’s economy is not an open economy. It’s a regulated one where the
state makes decisions which makes it an unfavorable destination.

57. QUESTIONS!