KOREAN ECONOMIC DEVELOPMENT & ENTREPRENEURSHIP Dr. Jinwon Ahn Professor, Handong Global University Former Assistant Secretary to the President of Korea, the Republic of Korea Former Visiting Professor, KDI school

2. Korean Economic Growth and Development 3. Market vs. Socialist Economy 4. Entrepreneurship

KOREAN ECONOMIC DEVELOPMENT & ENTREPRENEURSHIP

1. Introduction: Korea Admired

1. INTRODUCTION: KOREA ADMIRED

When I was born, Kenya per capita might have been wealthier than South Korea. Now it’s not even close.

When it comes to natural resources, when it comes to the talent and potential of the people, there’s no reason why Kenya shouldn’t have been on that same trajectory.

Remarks by President Obama at the Young African Leaders Forum in Kenya in 2010

1. INTRODUCTION: KOREA ADMIRED

President Obama’s Comments on Korea

(World Bank )

Current GDP ($) (PPP GDP)

1961

1981

2001

2011

2011 Japan 45,903 (34,294) Spain 32,244 (32,424)

S. Korea

92

1,846

10,655

22,424 (30,254)

Kenya

95

406

405

808 (1,718)

Uganda

146

102

234

487 (1,354)

Thailand

101

719

1,808

4,972 (8,703)

Philippines

611

737

966

2,370 (4,140)

Bolivia

179

1,077

960

2,421 (5,130)

Guatemala

252

1,194

1,625

3,178 (4,961)

NZ 32,620 (29,935) Israel 31,282 (27,835)

PPP GDP per capita takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates.

1. INTRODUCTION: KOREA ADMIRED

Comparison of GDP per capita

You see it today in the recipients of American assistance who are graduating from that assistance into full-fledged partnership in the trading community. Look at South Korea. In less than a generation, South Korea has been transformed from an aid recipient to one of the major donors in the world today. That’s an incredible story. (By John Kerry, Secretary of the State, in Select USA Investment Summit, Nov. 2013)

1. INTRODUCTION: KOREA ADMIRED

Secretary of the State, John Kerry’s Remarks on Korea

In 35 years under the brutal Japanese rule, about 10% of Koreans escaped to Russia, China and America, and another 10% were deported to battle fields as soldiers, workers and sex slaves. Many of them never returned to home after WWII.

1. INTRODUCTION: KOREA ADMIRED

Korea under the brutal Japanese Rule (1910-1945)

In less than 5 years after the Liberation from the colonialism, the Korean War broke out, resulting in casualties of over 3 million soldiers and civilians.

1. INTRODUCTION: KOREA ADMIRED

Korea during the Korean War (1950-1953)

In less than 5 years after the Liberation from the colonialism, the Korean War broke out, resulting in casualties of over 3 million soldiers and civilians.

1. INTRODUCTION: KOREA ADMIRED

Korea during the Korean War (1950-1953)

1. INTRODUCTION: KOREA ADMIRED

Korea during the Korean War (1950-1953)

Beggars and Orphans!

1. INTRODUCTION: KOREA ADMIRED

Cheonggye Stream (1950s – 1960s)

1. INTRODUCTION: KOREA ADMIRED

Cheonggye Stream (2012)

Financed by U.S. Foreign Aid and Built by a Philippine construction company in 1961

1. INTRODUCTION: KOREA ADMIRED

Twin Buildings: Ministry of Culture (Left) and US Embassy

Samsung C&T built it in 2010 by employing three satellites to make it upstraight. (Tom Cruise’s Mission Impossible 4)

1. INTRODUCTION: KOREA ADMIRED

Burj Khalifa in Dubai (World’s Tallest Building, 828 m high)

 Opened in 2001.  Grand Slam of the world best awards in 8 straight years - Cyber terminal, self check-in, auto-boarding/transfer system - 19 min. in departure process/ 12 min. in entry process (60 min. / 45 min. ICAO recommendations, respectively)

1. INTRODUCTION: KOREA ADMIRED

Transformation - Incheon International Airport

1. INTRODUCTION: KOREA ADMIRED

Success Stories Are Reproduced in Other Areas, too!

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

 GNP per capita in 1953 was $67.  58% of the government budget subsidized by foreign sources in 1953.  Predominantly agricultural (44% of GNP) - Mostly semi-subsistence on plots of 1 hectare  32,485 villages (40% were not accessible by trucks)  80% of farmhouses had thatched roofs - Only 20% had access to electricity.  About 22% of South Korea was under cultivation. - 75% of South Korea are mountain areas. - Nearly 50% of mountains were treeless in the late 1950s.  Parasite Infection Rate: 77%(1969) → 4%(1985) → 0.6%(1990)

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

“Sad & Shameful Korea” in the 1950s

1000

22,424

900

Per Capita GDP 20000

800

Per Capita GDP (USD)

700

OECD member 1996 12,197

15000

Receiving Foreign Aid

Global Financial Crisis from 2008

10000

600

500

400

Seven 5-Year Economic Development Plans 7,355 5000

1,846

300

Trade Volume

Asian Financial Crisis in 1997-98

200

100

1,034 0

92

0

Never before have the lives of so many people undergone so rapid improvement for such a long period, R Lucas, Jr (1993)

Trade Value(Billion US$)

25000

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

Korean Economic Growth

Running with the World Best Pacemakers - USA (Knowledge, Technology, Market, Human Resources) - Japan (Growth model, Production skill, Supplier of parts)  Two External Sources of Boom - Vietnam (1960s) and Middle East (1970s)  Chinese Industrialization delayed due to the Cultural Revolution (1966-1976)  Riding on the Liberalization, Globalization, and Digitalization from the 1980s  Seoul Olympic games (1988) and World Cup (2002)  Boom of the World Economy during the Korean financial crisis period (1997-2000).

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

Make the Best out of Opportunities in the World!

Strong export promotion supports high growth (Export Growth of 40% per annum in 1964-80)

Private Enterprises

Diligent workers

Strong Entrepreneurship

Overseas Marketing

Efficient Economic Policy making Financial Support

Economic Planning Board

Tax Support

Office of the President

Marketing Support

Economic Ministries

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

Government’s Strategic Roles for Growth & Export Promotion

 Oil Price Hike from $3.5 to $14 per barrel in 1973-1974 left Korea with current account deficit of $1.71 bil. (1974), near to bankruptcy.  President Park sent delegations to the Middle East and ordered construction companies to go there in 1974. - Government coordinated to exclude dumping in the bids and supervised to secure quality in construction. - Workers received exemption of military service, high salary, and honor. - Total value of overseas orders increased by 40 times * $260 mil. (1974)→ $850 mil. (1975)→ $8.2 bil. (1980)

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

Grab the Oil Money in the Middle East!

 National Mindset: Full of ‘Can Do Spirit’

- ‘Beat Japan!’ whatever it takes. - ‘Win over N. Korea!’ out of rivalry and fear of Domino led by Commmunists. (Unification of Vietnam in 1975 by North Vietnam).  Pioneering Entrepreneurs: Make something out of nothing!

- Hyundai Heavy Industry: Largest producer of cargo ship - Samsung: Largest seller of smart phones - LG: strong pacemaker of Samsung in electronics - Doosan: Largest desalination plant

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

National Energy: Reasons behind the Reasons

 Enthusiastic Parents: Sacrifices for Education - Korean parents eagerly wanted to provide the best education for their children. - 98% of students with high school credentials. - Excessively performance-driven.

 Relatively high quality college graduates - Only 10 % of graduates could find jobs in government and in public enterprises like Korea Tobbago & Ginseng and Korea Mining in 1960s. - They became ‘Reserve Army’ for industrializations in 1970s and 1980s.

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

National Energy: Reasons behind the Reasons

 Compassionate Workers - Go and work anywhere! (Extreme challenges to the Saharan desert, tropical areas and Siberia!) * From 1963 to 1978, 7,800 workers went to the German mines 1,000 - 3,000 m under the earth (Glück-Auf!), and 10,030 nurses to the German hospitals. * From 1974, construction workers went to the desert in the Middle East to earn oil money, fighting against poisonous spiders, scorpions and deadly desert storms.

- Longest work hours/year in OECD member countries.

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

National Energy: Reasons behind the Reasons

 14th largest economy (9th largest among OECD members) according to World Development Report (2010)

 11th biggest trade volume & 9th biggest export volume - Export volume: 1 mil. (1946), 100 mil. (1964), 1 bil. (1971), 10 bil. (1977), 100 bil. (1995), 200 bil. (2004), 400 bil. (2008) and 556 bil. (2011).  Stronger Competitiveness in terms of credit rating. - For the first time after the WW II, Korea became higher than Japan in 2012! (in all 3 majors: Standard & Poor’s, Moody’s, and Fitch)

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

Korean Economy in the World

World Rankings in Selective Areas in 2010 GNI

14

Population

26

Per Capita GNI

49

Human Development Index

26

Working Hours/year

1

Spending on Defense

12

Stock Trading Volume

13

Trade Volume

11

Foreign Exchange Reserves

6

Oil Import

4

Ship Building

1

Petrochemical Products

5

Steel

6

Smart Phone

1

Car

5

Electronics

4

Industrial Robots

4

% of High Speed Internet

1

Private Education Exp.

1

Students studying in USA

3

* Students studying in USA (2012-2013): China (235,597), India (96,754), Korea (70,627)

2. KOREAN ECONOMIC GROWTH AND DEVELOPMENT

Korean Economy in the World

3. MARKET VS. SOCIALIST ECONOMY

 In terms of per capita income, North Koreans were richer than South Koreans till to the middle of 1970s, according to the World Bank.

China Russia

N. Korea

 Land of Darkness! Check N. Korea and S. Korea at night! S. Korea

Japan

3. MARKET VS. SOCIALIST ECONOMY

North Korea and South Korea at Night

S. Korea

N. Korea

S.K./N.K.

Population (1,000)

49,410

24,107

2.0

GNI (bil. USD)

1,014.6

26.0

39.0

GNI per capita (USD)

20,759

1,074

19.3

Trade Volume (bil. USD)

891.6

4.2

212.3

Electricity (bil. Kwh)

473.9

23.7

20.2

Petroleum Import (mil. barrel)

872.4

3.9

226.4

Car production (1,000)

4,272

4

1,068.0

Crude Steel (1,000 ton)

58,912

1,279

46.1

Cement (1,000 ton)

47,420

6,279

7.6

Chemical Fertilizer (1,000 M/T)

2,815

459

6.1

Port Cargo Capacity (1,000 ton)

830,022

37,000

22.4

Paved Road (km)

105,565

25,950

4.1

Coal (1,000 M/T)

2,084

25,500

0.1

Iron Ore (1,000 M/T)

513

5,093

0.1

3. MARKET VS. SOCIALIST ECONOMY

N. Korea & S. Korea in 2010

4. ENTREPRENEURSHIP

 Narrow sense - Making a business - Starting a venture - Creating jobs  Broad sense: Creating something out of nothing! - Mindset change - Attitude and life style

4. ENTREPRENEURSHIP

What is Entrepreneurship?

 An entrepreneur is one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them (Zimmerer & Scarborough, 2008)

 The process of creative destruction, in which entrepreneurs create new ideas and new business that make existing ones obsolete, is a sign of a vibrant economy.

4. ENTREPRENEURSHIP

Entrepreneur Defined

 Commitment & Determination - Tenacious & Decisive, Able to commit & recommit quickly - Immersed in the mission  Courage - Moral strength & Fearless experimentation - Not afraid of conflicts & failure  Leadership - Self-starter & Team builder by inspiring others - Honest, Reliable & Patient

4. ENTREPRENEURSHIP

Core Attributes of Entrepreneurs (Timmons & Spinelli, 2009)

 Tolerance of Risk, Ambiguity & Uncertainty - Calculated risk taker & risk minimizer - Tolerant of uncertainty, stress & conflict  Creativity, Self-reliance & Adaptability - Restless with the status quo - Able to adapt & change - Not afraid of conflicts, failure

 Motivation to Excel - Goal & result oriented - Driven to achieve & grow

4. ENTREPRENEURSHIP

Core Attributes of Entrepreneurs

 In the world of business, if you start something brandnew and unusual, you may hear “You are crazy! Why do you attempt to do something never tried before?”. - “You cannot make a software company!” That was exactly what Bill Gates heard from his friends! - “You cannot run a computer firm!” That derision attacked Steve Jobs! - “Nobody will buy books on the internet!” That was what people said to Jeff Bezos (Amazon.com).

4. ENTREPRENEURSHIP

Entrepreneurs Scoffed at the Beginning!

Nominal GDP per capita (World Bank) Country

1961

2011

2011/1961

S. Korea

92

22,424

243.7

Singapore

438

46,241

105.6

Hong Kong

483

34,457

71.3

Japan

564

45,903

81.4

Thailand

108

4,972

46.0

Indonesia

55*

3,495

63.5

Malaysia

287

9,656

33.6

China

76

5,445

71.6

India

59

1,489

25.2

* Indonesian income in 1967

4. ENTREPRENEURSHIP

Entrepreneurship & Economic Growth

 Class Disintegration → Social Mobility  Colonialism, War and Hunger → Survival Motive  Market Economy → Opportunities & Challenges  Compassionate Parents → Education!  Timely Policy Incentive → Carrot & Stick to Entrepreneurs  Aggressive & Active Entrepreneurs → Extreme Challenges in Ship-building, Steel, Semiconductor, Car & Nuclear Plant  Failure after failures did not stop them.

4. ENTREPRENEURSHIP

Background of Korean Entrepreneurship

 Founders of Hyundai, Samsung, Posco and others

4. ENTREPRENEURSHIP

Famous Entrepreneurs in Korea

 Founder of Hyundai Group - He dropped out of elementary school due to poverty. - He started as an employee in a rice retail shop.  Never Stop Trying! - “A failure is nothing but a trial, as long as I never accept it as a failure.” - A lesson from a bedbug (Unstoppable effort to suck up blood): “After bitten by bedbugs while sleeping on a bed in a dormitory, he slept on the dining table. But few days later they climbed up the legs of the table, and he was again bitten. Then he soaked the legs of the table in the water. However, he could not stay away from them, which crawled up the wall and the ceiling, and jumped from there to attack him.”

4. ENTREPRENEURSHIP

Ambitious Spirit – Chung, Juyoung (1915-2001)

 Building a Shipyard in 1971 (Hyundai Heavy Industry)

- After rejected from Barclays by showing just a picture of bare seashore for the future shipyard, he was not frustrated and explained his business plan by using 500 KRW. He could finally borrow 80 mil. dollars from Barclays! - And an order of 2 very large crude oil carriers (260,000 ton) from Greek Livanos in 1972.

4. ENTREPRENEURSHIP

Ambitious Spirit – Chung, Juyoung

 Earning the Oil Money of USD 930 mil. (Hyundai Construction) - Saudi wanted to build infrastructure with overflowing oil dollars, but no countries would join due to extreme weather. - President Park sent the minister of construction and Chung separately to check feasibility of construction deals in 1975. Report on Saudi Arabia

Minister of Construction

Chung

Temperature Extremely Hot! (Over 60 degree) So workers cannot work!

Can work in the night and sleep in the day!

Water

No water in the desert! So construction is impossible!

Can use desalinated sea water! Can continue works everyday because of no rain!

Alcohol

Islam does not allow alcohol! Can save and send more money Workers cannot enjoy it! to Korea!

4. ENTREPRENEURSHIP

Ambitious Spirit – Chung, Juyoung

 Gyungbu Highway (428 km) from Feb. 1968 to Jul. 1970. - Working day and night shortened total construction period, which was the shortest in the highway construction history. - One-day life zone was realized in Korea.

4. ENTREPRENEURSHIP

Ambitious Spirit – Chung, Juyoung

 Hyundai

4. ENTREPRENEURSHIP

Famous Entrepreneurs in Korea

 Founder of Samsung Group - He started his business career by opening a rice retail shop. - creed: patriotic service by business. - Promoted semi-conductor industry, consumer electronics, cell phone, TV as well as insurance, chemical, textiles.



4. ENTREPRENEURSHIP

Driving Force – Lee, Byungchul (1910-1987)

 He closely watched Japanese industrial and technological trends for decades. - What is successful in USA would be successful in Japan, too. Then try proved ones in Korea!

 Quality upon quality!  Win consumer trust whatever it takes!  Human resources first! - Trust in employees and make them do their best! - Listening carefully to what engineers and workers say!

4. ENTREPRENEURSHIP

Driving Force: Fast Follower – Lee, Byungchul

 When he entered the semi-conductor industry in 1983 to produce VLSI after spending 8 years in preparation, western analysts mocked him as “crazy”. (No capital, tech & market) - He made possible in only 6 months what Japanese firms took 20 years.



4. ENTREPRENEURSHIP

Driving Force: Miracle maker – Lee, Byungchul

 Frankfurt Declaration on New Management in June 1993. - He was shocked by the fact that Samsung’s products were displayed in blind spots in the major US electronics retailers like Bestbuy and Circuit City. - He put strong emphasis on the quality, “Change everything except your wife and children!”

4. ENTREPRENEURSHIP

The World Living Together – Lee, Gunhee

 He ordered burning 15 thousands mobile phones after receiving the report of 11.8% defect rate in the mobile phone division in 1995.  He asked for securing soft technology and human powers whatever it takes when iPhone dominated the smart phone market in 2011. - Nowadays, Samsung is the number one seller in the world smart phone market.

4. ENTREPRENEURSHIP

The World Living Together – Lee, Gunhee

 Samsung’ export amounts to 21% of the Korean export. - Electronics, heavy chemicals, financial industry, trading, construction & engineering, clothings.  Performance after Frankfurt Declaration in June 1993. 1993

2012

2012/1993

Sales (bil. USD)

25.2

327. 6

13 times

Profit (bil. USD)

0.7

33.2

47.5 times

#1 Products in the world

2

20

10 times

Employees (thousands)

14

42

3 times

4. ENTREPRENEURSHIP

The World Living Together – Lee, Gunhee

 Samsung

4. ENTREPRENEURSHIP

The World Living Together – Lee, Gunhee

 POSCO is built by the reparation money from Japan, in other words, based on the bloodshed of our ancestors. “We should jump into the East Sea to die in it, if we fail!”

Park, Taejoon (1st president of POSCO)

4. ENTREPRENEURSHIP

Determination: Make Something – Park, Taejoon

 While building the steel mill in 1971, he contacted some of Australian mine owners to secure supplies of Iron ore and coal several times. They scoffed at the solvency of POSCO.  He revisited them wearing military uniform with stars on his shoulders. [Australians follow UK tradition!] - He explained the plan of POSCO and the importance of pacific rim cooperation.  Succeeded in producing molten metal in 1973.  Currently # 5 steel company in the world.

4. ENTREPRENEURSHIP

Make Something out of Nothing – Park, Taejoon

 Posco

4. ENTREPRENEURSHIP

Famous Entrepreneurs in Korea

 Industrialization and export-drive  Payback to Japan!  Rivalry with N. Korea  Gyungbu Highway (1970) inspired by Autobahn in his visit to Germany in 1964  Saemaul Movement (1970)

4. ENTREPRENEURSHIP

Pioneer of Growth – Park, Chunghee (1961-1979)

 In April 1970, President Park initiated Saemaul Movement: The village access road captured President Park’s vision of bringing social and economic transformation.

4. ENTREPRENEURSHIP

Vision of Saemaul Movement

 “Is there a hope in a village where villagers should walk carrying things on their back when they enter the village, because they do not have a village access road for a truck?”

4. ENTREPRENEURSHIP

Vision of Saemaul Movement

 In 1970, a total of 33,267 villages were given about 335 bags of cement (free of charge) to be used for community development projects that would improve living conditions (such as roads, bridges, wells, sanitation facilities, and others)

4. ENTREPRENEURSHIP

Implementation of Saemaul Movement

 Entrepreneurial Leadership

- He saved the Korean economy from the severest crisis that demolished 17 out of 30 largest firms in Korea. - People collected gold, and treasures. - Banks and firms were revolutionarily revitalized.  He was persecuted for decades like Nelson Mandela  He had the first summit meeting with the North Korean leader in 2000 from the division into two Koreas in 1945!  Nobel Peace Prize winner in 2000.

4. ENTREPRENEURSHIP

Harmony & Patience – Kim, Daejung (1998-2003)

4. ENTREPRENEURSHIP

Harmony & Patience – Kim, Daejung  Under his leadership, the Korean economy rapidly recovered from the financial crisis from 1997 to 2000. Hard Currency Reserves (Bil. USD)

Unemployment Rate (%)

1400

8

1200

7

1000

6

5

800

4 600 3 400 2

200

1

0

0 1997

1998

1999

2000

2001

2002

1997

1998

1999

2000

2001

2002

 Entrepreneurship can be trained according to Mueller & Thomas (2000).

- Business education can provide not only technical tools of business, but also necessary skills for self-management and coping with adversity and uncertainty.

5. CONCLUDING REMARKS

Entrepreneurs can be acquired, not born!

 Victims of colonialism, genocide and poverty! - Developing countries share similar experiences. - We can work together!  Developing countries are reserved for tomorrow! - Developed countries including USA, Europe and Japan are faltering. - Restore self-esteem and self-respect!

5. CONCLUDING REMARKS

You decide what country you are going to build!

 Please Never forget sacrifices Koreans paid! - Efforts, tears, blood, and lives lost!

 Do you love your family?  Do you love your mother country?  Then do something for your family and mother country!

5. CONCLUDING REMARKS

Create something out of nothing!

Thank You! 고맙습니다!

^|^