How South Korea wants to remain a tiger state – Economy

Minister Lee Young knows what it’s like to be a company founder in the land of the chaebol. She used to be one herself and had to accept that the huge family conglomerates like Samsung, Hyundai or LG, with their historical competitive advantages, dominated South Korea’s economy. It’s been 22 years since Lee Young founded the cybersecurity company Teruten. Until 2020 she was their managing director and lived on the one hand from the chaebols because they bought their products. On the other hand, she was also annoyed by their untouchable market oligarchy, which robbed creative start-ups of ideas and chances of survival. “The relationship between chaebols and small and medium-sized companies company wasn’t fair,” says Lee Young.

And now? Since she has been the head of the Ministry for SMEs, i.e. for small and medium-sized companies, and start-ups since May? Revenge time? Will it introduce the anti-conglomerate policy? On the contrary. Lee Young wants new opportunities for big companies – but in cooperation with the small ones. “I believe,” she says, “small businesses need big ones and vice versa.” A comprehensive cooperation between giants and dwarfs is to be created so that together they can bolster the fading image of the dynamic tiger state South Korea defend.

South Korea is not bad. Especially in the current crises, the war in Ukraine and ongoing corona restrictions on its largest trading partner China, the tenth largest economy in the world is showing what it can do. 2.9 percent growth in the second quarter of 2022. That’s better than the expected 2.5 percent. The country weathered the worst of the pandemic reasonably well thanks to its vibrant industry, which produces electronics, computers, cars and ships, among other things, for the global market. The so-called “Miracle of the Han River”, South Korea’s rise from a destitute agricultural state to a high-tech nation since the end of the Korean War in 1953, has produced an economy that can withstand something. Mainly thanks to the chaebols, which once developed into global companies with targeted state aid, Korean worker diligence and business instinct.

Some have long considered the image of the tiger state to be a cliché

Still, South Korea needs to think about its future. The population is aging rapidly. Some people have long considered the image of the lively tiger state to be more of a cliché than an appropriate title. “Korea is now an advanced economy,” Minister Lee agrees. “Our economy isn’t growing as fast as it used to.” And with prosperity, moral standards have also increased. The chaebols have long been seen not only as pillars of the domestic economy, but also as an obstacle to the development of South Korea as a business location. Why? Because for a long time the powerful owner families only thought about their growth, how oblivious royal families ruled past employees and spoiled the prices with exclusive logistics chains, influences, and cheating. The corruption scandal that jailed former Conservative President Park Geun-hye in 2017 showed how close government and the chaebols were often.

In the meantime, the conglomerates are paying more attention to the fact that professionals, not hereditary businessmen, run their companies. But the inequality in the South Korean business world is still there. The very small to medium-sized companies with the ideas of their founders are considered the actual engines of the so-called fourth industrial revolution, in which the digital world is to blur more than ever with the real one and South Korea wants to set trends.

According to figures from Lee Young’s ministry, SMEs and start-ups account for 81.3 percent of jobs in the country, while chaebols account for more than half of total export sales but only 18.7 percent of jobs. A new harmony is therefore being sought between the economic forces, so that they do not squander energy unnecessarily in efforts to achieve a flourishing K-economy. “Companies have to learn to benefit from each other,” says Lee Young, “because that wasn’t our culture until now.” Competition stimulates the market economy, which is why it doesn’t initially sound like a problem when companies compete for success. But the conditions have to be the same for everyone, otherwise the little ones don’t stand a chance.

South Korea wants to promote small and medium-sized businesses with a new ministry

Promoting small and medium-sized businesses is not a new idea in South Korea either. From 1996 the Ministry of Industry maintained its own organization for this. The previous government under the liberal President Moon Jae-in turned it into the SME and Start-up Ministry. But the new government of conservative President Yoon Suk-yeol, elected in March and sworn in in May, is now taking the next step: Lee Young’s ministry is testing a new system of price indexing so that the chaebols can no longer arbitrarily undercut smaller competitors. It pushes measures against technology theft. And networks between the fronts for a sustainable competitive climate at work lunches, task force meetings, public appearances. “We hold the idea that we all need to promote mutual growth and win-win situations in the domestic market – but at the same time, companies also go abroad to face global competition and rise to a better status in this new digital economy of Korea,” says Lee Young.

The chaebols join in. It wasn’t until the beginning of September that there was another event that was supposed to demonstrate the solidarity between the ministry, start-ups and chaebols. Samsung Electronics co-sponsored the government’s “Win-win Smart Factory” initiative, which enables small and medium-sized enterprises to build intelligent factories for digital production with the help of Samsung. “The government’s motivation is of course different from that of the chaebols,” writes Christoph Heider, President of the European Chamber of Commerce in Korea. “The government wants diversification, identification of new technologies and growth drivers and thus also jobs. The chaebols only want new technologies and growth drivers”. And the conglomerates certainly don’t just like the legislative initiatives against their previous competitive advantages.

But Lee Young is confident in her course. She wants the end of dull chaebol profit-making, and instead wants profit and recognition for the little ones they’ve never had a chance at before. “We are facilitating the transition to a more values-driven, truly advanced economy,” says Lee Young. As a minister, she is now doing the politics that she wished she had when she was the founder of the company.

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