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Miracle on the Han River :

Koreas industrial development

Hyerim Yoon (hyerim.yoon@uab.cat)


Department of Geography, UAB

Source: Cumings (1997)


Photo source: facebook page Seoul Korea

INTRODUCTION TO KOREA

, , lit. "The Great Map of the East Land 1864 by Kim Jeong-ho

History of Korea starts in BC 2333


Han people ( )
Confucian culture
Values education
Harmony
Collective spirit

Average monthly income per worker: 3,235,209 KRW


(2,652)
GDP (2013 est.)
US$1.666 trillion (purchasing power parity)
Ranks 13th in the world

US$33,200 (Per capita, PPP)


Ranks 42nd in the world, 41st EU $34,500
Spain $30,100

Unemployment rate : 3.1%


Youth (Age between 15-29) unemployment rate : 7.1%

70% is covered by mountains without any significant natural


resources other than labor force

Population: 50,617,045 hab. (2015 est.)


Area: 100,284 km2 (around 1/5 of Spain)
Density: 504.7 people / km2 (2010)
Birth rate: 1.21

Member of OECD (1996)


From a ODA recipient country (1950) to donor country (2010)
Received total amount of US$ 12 billion

Human Development Index: 15th


ICT Development Index (IDI) :1st

www.itu.int/go/mis2013

Economic Output [%]


Services
Manufacturing, electricity, gas, water and construction
Agriculture, fisheries and mining

28,3

35,3

43,5
54,5

8,7

69

59,4

59,3

59,1

37,5

38,3

38,6

3,1

2,5

2,3

2005

2010

2013

14,3
22,5
27,6

63
50,4

20,2

34
17,9
1963

1970

1980

1990

10,8
2000

Source: http://www.newgeography.com/content/002060-the-evolving-urban-form-seoul

INDUSTRIAL DEVELOPMENT :
AN OVERVIEW FROM 50S TILL TODAY

Lost years : 1948 to 1953


After Japanese colonial period (1910-1945)
First Republic of Korean established (1948)
Autocratic leadership of Rhee, Syngman
Division of country between Soviet Union and United
States of America at the Parallel 38 two countries

Korean war (1950-1953)


No resources: social structure built with US aids was
all destroyed
No capital

We lost North Korea, our (then) richer part

1950s
Political Turmoil
Troubled economy no capital
Poverty humanitarian aids which were surplus
material from US economy
Economic activities
Agriculture
Light manufacturing
The Three White Industries : wheat, sugar and cotton fabrics
High raw material cost cartel formed for purchase of raw
material

Park Chung-hee (1961- 1979)


centralized and characterized
by quick decision that carried
authority
technocratic set of priorities
In human life, economics precedes
politics or culture
(Park 1962)
Ogle, 1990; Guilen, 2001
Picture of Park http://www.pressian.com/news/article.html?no=58495

Planning for economic growth (1960s)


5 Year Economic Plan (1962 1996)
Highly centralized policy
Controlled and planned by the Economic
Planning Board (EPB)

Export oriented economy


Economic independence

Lessons Learned from Japanese Model


of Economic Growth
Government conglomerates nexus
Chaebol

Currency reform
Financial institutions formed

5 YEAR ECONOMIC PLAN


First : 1962-1966
Second : 1967-1971
Third : 1972-1976
Forth : 1977-1981
Fifth : 1982-1985
Sixth : 1987-1991
Seventh : 1992-1996
1997 Asian financial crisis (IMF)

1970s
3rd 5 Year Economic Plan (1972-1976)
Heavy chemical industry (HCI) strengthened state-chaebol nexus
Investment to large corporations
To level the national industrial structure and increase value-added
earnings
labor-intensive products (competitive)

Saemaeul Movement
(New Community Movement)
Rural development model
Traditional Korean communalism for self-governing and cooperation:
Hyang-yak and Doorae
Basic living conditions to infrastructure
Loses momentum in mid 1980s

1970s
Big leap in the growth till the oil shock
Economy growth rate 8.1% (1970)
Middle East market for export and construction
business
Rise in domestic savings economic autonomy

Oil shock in 1974 and 1979 (minus growth of -5%


)
Neither domestic savings nor trade surpluses could
supply the capital needed for the HCI policy (1979)

Gangnam

Trailer: https://www.youtube.com/watch?v=zEjoeV2Uepw

Innopolis Daedeok
Formerly known as Daedeok Science Town
in Daejeon (1973)
Research and development district
A research hub for 20 major research
institutes and 40 corporate research
centers
Specialization: IT, BT, NT, ST and ET
Commercialization of technologies
TDX(Electronic Telephone Exchanger (1986),
Polybutene (1993), Research Reactor (1995),
CDMA -Digital Mobile Communications
System (1996), and Hubo2 (2009) etc.

1980s

(L1, 2) http://fail-en-coree.blogspot.com.es/2013/08/voyage-gwangju-le-soulevement-du-18-mai.html
(R) http://www.telegraph.co.uk/sport/olympics/picturegalleries/8869494/Olympics-posters-through-the-ages.html?image=21

1980s
The production capacities of the semiconductor, automotive,
steel, and shipbuilding industries exceeded relative domestic
market demand
Government intervention
Hyundai: automobile manufacturing
Samsung: semiconductors
LG: petrochemicals
(yield its semiconductor biz to Hyundai)
Daewoo: The electrical generator business

Efforts on stabilization of economy

1980s
Three-lows : Crude oil, US$ (exchange rate), Interest rate
1985 exports gain momentum
1988 (Year of the Olympic)
Exports reached US$ 60 billion in 1988

Chaebols expanded in the real and financial sectors


Instrument for economic growth
Economies of scale and scope

Economies of scale are the cost advantages that enterprises


obtain due to size, output, or scale of operation
Economies of scope refers to lowering the average cost for a firm
in producing two or more products

1990s

Leverage
1. The use of various financial instruments or borrowed capital to
increase the potential return of an investment
2. The amount
of debt used to finance a firms assets. A firm with
of Korea
6th Republic
significantly more debt than equity is considered to be highly
1987 Roh
Tae-woo
leveraged.
Debt to equity ratio = debt/equity
Financial liberalization
= Total liabilities/shareholder equity

WTO 1995/ OECD 1996

Government-chaebol nexus backfire


1. large corporations were highly leveraged
Top 30 chaebols average debt to equity ratio in 1997 = 600

2. lack of discipline in financial sector


Government direct or indirectly appointed loans
Lacked surveillance and evaluation of risks

(investopedia.com)

IMF Crisis (Asian Financial Crisis )


a triple mismatch 1997
: mismatches of currency, loan maturity, and the statechaebol ability to cope with the capital account liberalization
Loan of US$ 58 billion (IMF)

Restructuring Chaebol
Layoffs
Downsize
Chaebol had become
from too big to fail to too big to bail out for the state

Gold Collecting Movement


225 tons of gold
(US$ 1.8 billion)

Market open to foreign


investment (direct
investment)
Investment in R&D of
Technology
IT, ICT development

2000s
Out of Crisis

Economic reform
Subsidies for Chaebol dramatically cut
Low interest rate and return of foreign investors
President Kim Dae-jung (1998-2003)

"Future growth engine (2009)


Shorterm (3-5yrs)
Renewable energy
(Tidal, Waste)
Green (high tech) city
MICE and tourism
Global health care
Communications
convergences system

Midterm (5-8yrs)
Renewable energy
(Solar, fuel cell)
Advanced water treatment
Low carbon energy
Value added food industry
LED application
Global education system
Green finance
Contents, soft ware

Longterm (10yrs)
Renewable energy
(Marine bio fuel)
CSS
Green transportation
Robotic application
New material and Nano
science
Bio-pharmaceutical
industry

Investment in R&D
Proportion of investment total to GDP
4.36% : 2nd highest in the world
Private and public investment in Research and
Development (Industry, public research
institute, Universities etc.)

Four innopolis: Daedeok, Gwangju, Daegu,


and Busan

Industrial Complex

Korea industrial complex corporation (www.kicox.or.kr)

KOREAN INDUSTRY TODAY

Korean Industry Today


Main export partners
China 24.5%, US 10.7%, Japan 7.1%, Hong Kong 6%, Singapore
4.2% (2012 est.)

Main industries
Sectors

Leading companies

Electronics

Samsung, LG

Telecommunications

SK Telecom, KT

Automobile

Hyundai, Kia

Chemicals

LG chemical, LG Household and Healthcare, Samsung Total, Fine


Chemicals, General Chemicals

Ship building

Hyundai Heavy Industry, Daewoo Shipbuilding and Marine


Engineering, Samgsung Heavy Industry

Steel

POSCO, Hyundai Steel, Hyundai Hysco, Dongkuk Steel Mill

Major companies

Samsung Electronics, Hyundai Motor, Posco, Shinhan Financial Group, KIA Motors,
Hyundai Mobis, Samsung Life Insurance, KB Financial Group, SK Hynix, Hana
Financial Group, SK Telecom, SK Innovation, Korea Electric Power, LG Chem, Lotte
Shopping, Samsung Fire & Marine, Hyundai Heavy Industries, SK Holdings,
Industrial Bank of Korea, Hyundai Steel, LG Electronics, LG Display, Woori Finance
Holdings, LG Corp, Hanwha Life Insurance, Samsung C&T, Samsung Heavy
Industries, Hanwha Corp, KT Corp, Korea Gas, NHN, Hyundai Engineering, Doosan,
Dongbu Insurance, E-mart, Hyundai Glovis, Doosan Heavy Industries, S-Oil, CJ
Corp, DSME, Hankook Tire, Korean Air, Hyundai Marine & Fire, Lotte Chemical,
KT&G, LIG Insurance, GS Holdings, Hyosung, SK Networks, BS Financial Group,
Hyundai Hysco, CJ Cheiljedang, LG Uplus, DGB Financial Group, Meritz Financial
Group, GS Engineering, LS Corp, Hanjin Shipping, Daelim Industrial, Hanwha
Chemical, Hyundai Wia
Source: https://www.gfmag.com/global-data/country-data/south-korea-gdp-country-report

1938 1st Generation: Lee Byung-chull (Daegu as food trader)


1954 textile mill Cheil Industries
1969 Samsung Electronic
Fans, TVs, Microwave ovens
Part maker and original equipment manufacturer

1974 Semiconductor
1980 DRAM 64 kilobyte

1987 256 kilobyte chip

By 1988 profits from 256 kilobyte chip had offset all the losses

1987 2nd Generation Lee Gun Hee


1993 Frankfurt manifesto: "Samsung will no longer be a follower
Change everything but your wife and children

1996 Automobile A subsidiary of Renault (2000)


Early 2000s mobile
2007 Lee accused of illegal transactions resigns in 2008 (15% of GDP)
2010 Lee returned to Chairman position
Cash reserves held by Samsung Electronics Co. : 54.5 trillion KRW
http://english.yonhapnews.co.kr/business/2014/11/02/95/0501000000AEN20141102001500320F.html

Hansol group

Married to
LG group

Samsung group

Saehan media group

Shinsegae group

CJ group

http://golancourses.net/2013/taeyoon/03/02/taeyoon-project-sketch-2-samsung/

NEW PLAYERS
E commerce

US$ 33.11 billion (2014, from statista)


62% of online shopping reach
G market has 12 million unique monthly visitors

Mobile

Cosmetic industry

Internet

Online game

Pharmaceutical industry

Korean Wave (Hallryu )


Since late 1990s
Started in East, South, South East Asia and now have spread to wider areas
in the world
K-dramas, K-pop, Korean Movies, Language, cuisine, games and tourism
Profitable industry
Game industry (copyright) US$680,000,000
Other K-wave US$120,000,000

Number of views on K-pop Youtube videos: 793 million

http://www.yonhapnews.co.kr/bulletin/2013/11/11/0200000000AKR20131111182300002.HTML?from=search

Film industry

Tourism

More than 12 million foreign visitors South Korea(2013)


Japan, China, Taiwan and Hongkong
In 2013, travel and tourism (domestic and international)
directly contributed KRW26.7 trillion to South Korean GDP
and directly supported 617,500 jobs in the country.
Youtube: https://www.youtube.com/watch?v=tfAMEEjdNf0

COSTS OF SOUTH KOREAN


DEVELOPMENT

Problems of (fast) development


Economic inequality
Regionalism
Disappearing middle class
Chaebol vs. SME

Environmental issues
Labor issues
Other social issues

Economic disparity
Regionalism

Democratic United
Moon Jae-in
(48%)

Saenuri Party
Park Geun-hye
(51.6%)

Result from 2012 Presidential election

Environmental issues
Pollutions from heavy chemical industry (end of
1970s) led to increased awareness and citizen
movement
Development precedes environmental concerns
Except Dong river construction plan (98-99)

Dumulmeori: forced to change organic farming to organic


education under four river restoration project (2010-)

http://sociecity.com/rethink/south-korean-four-rivers-organic-education

Jeju Navy base at Gangjeong village (2006, 2011-2012)

Yellow dust to particular matters


The economic and environmental damage = US$5 billion/yr (est.)

Labor issues

First labor movement started in 1969


Jeon Tae-il (1948-1970) founded Babo Association
Survey on the working conditions of sweatshops
Taught co-workers about the labor code
15year old female workers work 98 hours per week. 20 year old female workers with around 6
years of experience suffer from a eye disease, tuberculosis, and neuralgia.
Request: current working hour of 14hour/day to be reduced to 10-12hour/day, No work on Sunday
and two leave per month, medical check-up, payment increase
(Jeons petition to the president)
We are not machines, enforce the labor code"

Korean workers : 2,092 hrs/yr (2012) 2,285hr/yr (2014)


Japanese workers: 1,765 hrs/yr (2012) 1729hr/yr (2014)
Korean workers worked 515hours more than OECD average
30% failed to use half of their leave.
70% workers experienced burn out
http://www.businesskorea.co.kr/article/3366/work-life-balance-koreanworkers-show-lowest-productivity-oecd-despite-long-overtime

1.
2.
3.
4.
5.
6.
7.

Rigid Structures and Hierarchy


Communication Issues
Mobile Phone and online communication
Hungover workers taking excessive break
Form rules over substance
Poorly equipped older graduates
The art of looking busy
http://www.businesskorea.co.kr/article/3698/insider-perspective-seven-reasons-why-korea-has-worst-productivity-oecd

http://www.northernsoul.me.uk/revolution-in-north-korea/

NORTH KOREA
OUR VERY SPECIAL NEIGHBOR

Disparity between North Korea and South Korea


GDP per Capita(nominal) of Korea

GDP per Capita(nominal) country comparison


Malaysia

China

Vietnam

N.Korea

(Hyundai Research Institute 2014)

http://www.reuters.com/article/2013/01/01/us-korea-north-unification-idUSBRE90004F20130101

Cost of Unification?
7% of GDP = 86.6 trillion won
(US$80.62 billion)

() if the two Koreas unify within the next eight years, South Korea would likely pay from one to
seven percent of its annual gross domestic product (GDP) every year for 10 years.
(The Finance Ministry 2013)

Kaesong Industrial Complex


Kaesong
a frontier city
10 km north of the demilitarized zone
Collaborative economic development
between North and South Korea
Cheap wage of North Korean workers
Sensitive to political situation

Number of South
Korean companies
North Korean
workers
Production

(1000$)

2005
18

2006
30

2007
65

2008
93

2009
117

2010
121

2011
123

17,621

11,189

22,538

38,931

42,561

48,284

48,206

14,906

73,737

184,779

251,422

256,475

323,323

401,848

Tourism between
North and South Korea
Began in 1999 with the establishment of
Hyundai Asan a major investor in North
Korea
They brought 500 cows to North Korea in
June 1998 to start the discussion
1999 Tourism to Kumgang Mountain by a cruise
2003 Tourism to Kumgang Mountain by bus
2007 Tourism in Kaesong

Since July 2008 tourism programs to


Kumgang Mountain and Kaesong came to a
halt after civilian tourist shooting in 2008
and Cheonan submarine sinking 2010
(http://www.mtkumgang.com/, http://www.ikaesong.com/)

comicsagogo.com

CONCLUSION

Koreas development was possible :


Strategic industrialization
Central driven economic plan from strong leadership

Chaebols performance and states role in juggling its


relationship with Chaebol since 50s
IMF crisis
Disparity
Dominance in the industry SME hostile environment

Real Estate Boom (Bubble)


Investment in R&D
Crisis management
Vision for growth and economic independence
Export driven industrialization policy
Open economy policy
Low interest rate

Government driven innovation for economic development


in the long term

And some problems are more political

South Koreas economy has been hit hard


this year by an outbreak of MERS
respiratory disease and a slowdown in
demand from China and other Asian
countries. The biggest risk to South Koreas
reputation abroad, however, is not economic
but political, chiefly Ms. Parks heavyhanded attempts to rewrite history and
quash dissent.

Protesters marching to the Presidential House after a rally against


government policy in Seoul, South Korea. CreditAhn YoungJoon/Associated Press
http://www.nytimes.com/2015/11/20/opinion/international/southkorea-targets-dissent.html

http://blog.naver.com/dokdofund/220549533139

THANK YOU
MERCI