Riding the Indian Elephant and the Chinese Dragon

Written by KAIST Business School Dean Ravi Kumar

President Lee Myung-bak and his administration have envisioned that Korea should double its per capita income, to around $37,000, by 2020. This is a tall order requiring a growth rate of more than 6% every year. Korea is now a developed economy and historically, the natural rate of growth decreases to around 3%, as an economy becomes more mature. One way, and maybe the only way, to achieve this extra growth is to latch on to the large economies of China and India, as they are projected to grow at an astonishing rate of 7-10% for the foreseeable future.

And Korea has done this well in the past, especially with China, which is its largest trading partner. Efforts such as the recent door-to-door container system agreement with China, which will boost efficiency in container transportation, will ensure that trade will increase over the $156 billion in 2009. More recently, trade with India has grown rapidly up to $12 billion in 2009, with India becoming the ninth largest trading partner of Korea, up from twenty-fifth a decade ago. Strategic agreements, like CEPA signed in 2009, will continue to foster trade between the two countries. But with both countries, Korea has a trade surplus—in 2009, $32 billion with China and almost $4 billion with India. And it is certain that both countries are not very happy with this imbalance. What should Korea do to establish a win-win relationship with these countries so that they do not take any adverse actions regarding trade with Korea?

In my experience, talking to Indian and Chinese businessmen, politicians and university students, Korean companies are seen as providing great products and services at a good value, technologically sophisticated and eager to do business. Korean companies are also seen as willing to invest in production facilities and give employment to local people to produce their products and services (although senior management is mostly restricted to Korean expats).

And similarly, the Korean government and senior political administrators are seen as focused on growing their economy, making their citizens wealthier, creating markets for their companies to sell into, and securing resources that their companies and economy will need in the future. An example of this is the near-agreement between Korea and Bolivia that gives access to Korea to mine lithium, an ingredient used in battery technology that Korean companies are investing in heavily.

So, is this bad? This single-mindedness is seen as being good in one way (and most citizens would wish that their governments thought the same way about their companies and citizens!) but detrimental when seen from the perspective of the trading partner. It seems that it is all about Korea and Koreans.

Besides continuing to invest and give employment, Korea and Korean companies need to educate their trading partners that they also help with bringing in foreign exchange, through exports from these countries. Hyundai exports hundreds of thousands of cars from India and similarly, Samsung and LG export TVs and cell-phones from China. Foreign exchange is something every country wants, to ensure that they can buy the goods and services that their citizenry needs from other countries, with “hard” currency.

But these countries want more—they want the technological skills of their people improved so that they can earn more and better their lives. This means continuous training of their workers in their factories to develop their skills, educating their high-potential local employees by sponsoring them to top MBA programs and then, giving this local talent opportunities to take on the roles that were kept for the expat Korean managers. In short, treat their local employees just as they would treat their Korean employees in Korea.

Similarly, they want the growth of their own companies enhanced by Korean companies. This means Korean companies giving opportunities for local suppliers, especially if they are already world-class. For example, Korean companies partnering with top Indian IT software companies in developing software solutions for themselves and their customers. For those local suppliers that are not world-class, they would like Korean companies to share technology with their local suppliers, helping them attain skills that make them world-class suppliers and expanding the role of their local suppliers to support them globally. They want such skills and technological improvement of their local companies to lead to exports, even back to Korea. In short, treat their local suppliers just as they would treat their Korean suppliers, or even better, their Korean subsidiaries that supply to them.

Korea has started building a more constructive partnership, beyond economy, with China. Hundreds of thousands in tourist traffic, thousands of students studying in each others’ countries, and most importantly, Korean cultural icons (movies, dramas, popular singers and gaming) are looked up to in China. Korea’s constructive relationship in building “soft power” with India lags far behind.

These countries would like Korea and Korean people, Korean companies and executives to participate in and integrate with their local culture—become part of their social fabric. I heard one senior Indian executive mention that an important reason for the success of Samsung and LG in India is the fact that they are two of the biggest advertisers in the game of cricket. Koreans (and for that matter, most citizens of other countries in the world) could not care about cricket, but the undeniable fact is that Indians are crazy about cricket and anybody who can share in that, in any way, becomes part-Indian!

So, can Korean companies develop their local employees to become part of their own global management? Can they develop local suppliers to become some of their global suppliers? Can they manage strategic partnering with local businesses to attack global markets? Can Korean management truly globalize, accept other cultures into senior management and establish trusting relations across cultures? Can Koreans be seen as part of the fabric of other cultures and grow “soft power”? To secure its own future, Korea and Korean companies need to develop these capabilities in order to grow with India and China.