Analysis of South Korean Macro Environment for Canadian Business Expansion

This report provides a detailed analysis of the South Korean macro environment to identify opportunities for a Canadian business to expand its operations in the country. It discusses the stable economic and political environment, free trade agreements, and factors affecting inward foreign investment. The report recommends Canadian businesses to consider expanding in South Korea for growth and development.

Running head: INTERNATIONAL BUSINESS
International Business

INTERNATIONAL BUSINESS 1
Executive Summary
The above report has presented a detailed analysis of the South Korean macro environment in
order to understand the level of development and growth present in the nation. The basic aim
of the paper is to identify the opportunities for a Canadian Business to expand its operations
in the South Korean market. From the analysis, it has been analyzed that South Korea has a
stable economic and political environment, which support different businesses to expand their
operations in the country. Besides this, the country was involved in different free trade
agreements to offer development opportunity to different countries. The report has
recommended Canadian Business to expand its operations in the South Korean market to
grow and develop.

INTERNATIONAL BUSINESS 2
Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Macro Environment Analysis................................................................................................3
Description of South Korea................................................................................................3
Political Situation and Stability..........................................................................................5
Legislation Affect Inward Foreign Investment..................................................................6
Economic Condition and Stability.....................................................................................7
Cultural Issues....................................................................................................................7
Factor Endowments................................................................................................................8
Labor..................................................................................................................................8
Capital................................................................................................................................8
Entrepreneurship................................................................................................................8
Analysis..................................................................................................................................9
Conclusion and Recommendations..........................................................................................10
References................................................................................................................................11
Appendix..................................................................................................................................13
Appendix 1...........................................................................................................................13
Appendix 2...........................................................................................................................13
Appendix 3...........................................................................................................................14
Appendix 4...........................................................................................................................14
Appendix 5...........................................................................................................................15
Appendix 6...........................................................................................................................15

INTERNATIONAL BUSINESS 3
Introduction
The intent of this paper is to highlight the importance of international business in the context
of expanding business operations in different international countries. The paper is based on
discussing the highlights of South Korean market in order to suggest a Canadian company
whether or not to expand its business operations in the country. A detailed macros
environment analysis will be elaborated under this paper by taking consideration of different
forces that can be the barrier in the direction of the company while expanding business
operations.
Macro Environment Analysis
Description of South Korea
South Korea is known, as the Republic of Korea, a nation that is established in East Asia,
instituting the southern zone of the Korean Peninsula. The name of the country was derived
from Goguryeo, the one with great powers in the region of East Asia. The total population of
the country is 51 million accommodated over 38,375 square miles. In the Asian market, the
South Korea economy is considered to be the fourth largest and across the world 11th largest
(Gone 2 Korea, 2019). It is a mixed economy, which is conquered by family-owned
corporations known as chaebols; however, the supremacy of the chaebol is questionable to
last for longer duration and engenders danger of decreasing the Korean economy
transformation for the profit of future generations. The country is well known around the
world for its remarkable development from the poorest nation of the world to the most
developed one, with high-income in just a few generations. Additionally, South Korea is also
called as a Launchpad for the mobile market, where creators get advantages of the value of
the market. The nation possesses an increasing innovation and inventions trend of different

INTERNATIONAL BUSINESS 4
kind of applications or media, using the 4G and 5G infrastructure of the internet. Today,
South Korea has developed infrastructures that are enough for the culture and population that
has the competence to make strong native particularity.
Across the world, South Korea is considered the most modern and developed country in
terms of infrastructure, which is being developed since the 1960s. The private sector and
government of the country are together working towards operations, construction, and
financing of numerous services and projects of infrastructure. For the 21st century, the
government of the country has committed to invest around US$300 billion for the
development of railways, mega-resorts, roads, and airports. Besides this, it will invest around
US$60 billion on the 100 power-generation facility construction (Ro, 2002). Moreover, some
key industries of South Korea add value in the development such as Shipbuilding,
Automobile, Mining, Construction, Armaments, and Tourism and few of them are discussed
below:
 In the period of 1970s and 1980s, South Korea came as the foremost ship producer,
comprising oil drilling and oil supertankers platforms. The key shipbuilder of the
nation was Hyundai, which support it in becoming the most dominant shipbuilding
market with around 50.6% share in the global market (Ship Technology, 2019).
 The automobiles sector of the country was the key export and growing industry in
1980. Today, it is the most developed market of the largest producer of an automobile
with key players Hyundai.
Free Trade Agreement
The South Korea-EU free trade agreement has been conditionally from July 2011 and
officially approved in December 2015 (European Commission, 2018). Its agreement is being

INTERNATIONAL BUSINESS 5
continued for many years in comparison to other previous agreements in elating barriers of
trade and was the first trade deal of EU with the country of Asia.
Inward Foreign Investment
As per the report of UNCTAD 2018 World Investment, after the decline in the year 2015
because of the departure of Tesco, the movements erected at around USD 12 billion in the
year 2016, and it set the record at high in 2017 with around USD 17 billion as the FDI
commitments, majorly in the petrochemical and information technology segments. The
growth is because of the number of M&A sales in the nation and the establishment of tax
incentives for international businesses in order to increase FDI (Banco Santander, 2019). In
terms of FDI, South Korea is considered as the world’s 20th top nation in 2017. The FDI stock
of the nation increased by 22% from the year 2016 to 2017 and touched 230 billion. (Refer
Appendix 1)
Corruption Level in South Korea
As per 2018, Index of Corruption Perceptions, the country is placed at 45th rank in terms of
the least corrupted country out of 175 nations. The corruption range in South Korea is
averaged at around 42.29 from the year 1995 (Trading Economics, 2019b). (Refer Appendix
2)
Political Situation and Stability
The World Bank represents the statistics for the Political stability of South Korea from the
year 1996 to 2017. The country's average value in the duration was around 0.35 points with
the least value of around 0.11 points in the year 2014 and the high value of 0.57 points in the
year 1996 (Global Economy, 2018). This data represents that the nation has a stable political
environment and there is an absence of Terrorism as well as violence. (Refer Appendix 3)

INTERNATIONAL BUSINESS 6
Legislation Affect Inward Foreign Investment
Trade Barriers
Economic deregulation and liberalization procedure has been continued by Korea. In the
KORUS FTA, the goods imported from the United States are verified in terms of
documentation that could prove that the products are indeed originating. The embassy of the
United States actively involves in the ROKG on KORUS execution and identifies technical
trade barriers (TBT) in order to avoid any type of issue or challenge. TBT comprises a due
process, labeling, transparency, and new standards requirements (Export. Gov, 2018).
Tariff
Korea maintains a quota system for tariff to alleviate national markets of the commodity.
Customs duties could be updated in every six months with the limited basic rates, with 40%
plus or minus. Besides this, the country implements a flat 10% as Value Added Tax on every
domestic and imported product. In addition, an excise tax of around 10 to 20% is charged on
the durable and luxury consumer products importation (Export. Gov, 2018). The rules of the
country imply that the taxes and tariffs should be paid within 15 days after products have
cleared all the Customs duties.
Subsidies
The Canadian government is presently trying to increase the number of jobs and create
opportunities for citizens in different areas of the world. In 2014, the president of South
Korea announced a new free trade agreement with Canada (Global Affairs Canada, 2016). It
is considered as the very first free trade agreement of Canada with the Asian country that will
be focused towards grabbing new opportunities for the development. The free trade will be
focused on creating jobs and increasing import as well as export.

INTERNATIONAL BUSINESS 7
Economic Condition and Stability
South Korea is highly considered country across the world for its growth and progress. In last
five decades, the yearly average growth rate has surpassed 5% and its economy is today
driven through innovation, a country with high-income of 49 million residents with overall
GDP in a surplus of around $1 trillion and $20,000 as per capita income (South Korea
Economics, 2019).
The economy of the country accounts for 2% world GDP and it is developing to compete
with the income level of Japan (South Korea Economics, 2019). Few of the critics consider
South Korea the “Germany of Asia". Besides this, Jim O'Neill, BRICs acronym creator
represents South Korea the top country in regards to the continued potential of growth. (Refer
Appendix 4)
The currency of South Korea
The won was introduced as the currency of South Korea after the end of World War II, which
was the period when Korea divided into two parts that are South and North Korea. Both the
parts make use of won as their currency by replacing yen. At the time of won introduction in
South Korea, its value has fallen in comparison to USD in 2000, which was the major
downturn for the economy with around 1800 KRW to 1 USD. However, after that, the value
of the currency has stabilized to over 1100 KRM to 1 USD (Continental currency, 2015).
(Refer Appendix 5)
Cultural Issues
Societal Context
The Confucian set of mind is the basic portion of the culture of Korea. According to the
principles of Confucian, people with higher position or age are preserved with respect, at
business and social levels. Besides this, the employees in the country are loyal to their bosses.

INTERNATIONAL BUSINESS 8
Languages
In spite of the fact that numerous people in the country get an education in the foreign
country, including the USA’s best universities, but the absence of good English language
skills is noticed as the biggest barriers that arise while doing business in Korea market
(Denmark In Korea, 2019).
Factor Endowments
Labor
The rate of Labor Force Participation in South Korea declined in December 2018 to 62.2%
from November 2018 that is 63.20%. The average rate of Labor Force Participation from
1982 to 2018 is 60.91% (Trading Economics, 2019a). The rate of labor force participation
represents the number of people employed and unemployed. (Refer Appendix 6)
Capital
Heavy dependence on debt finance, majorly by the local banking system is said to be the key
feature of the Asian market and is represented in the East Asian firm's high leverage. In the
period of 1988–1996, companies of Korea possess the high leverage evaluated through
leverage ratios (Fattouh, Scaramozzino & Harris, 2005).
Entrepreneurship
While entrepreneurs are encouraged and motivated in the United States, in Korea higher
preference is provided to stable jobs in huge firms and MNCs such as Samsung. To growth
supporting and positive attitudes in the direction of Entrepreneurship, Park the president has
scheduled meetings with different successful entrepreneurs of the U.S such as Larry Page,
Mark Zuckerberg, and Bill Gates and visited numerous well-known start-ups in Korea (CIPE,
2014).

INTERNATIONAL BUSINESS 9
Analysis
From the above analysis, it has been identified that the country offers different types of
benefits as well as challenges to the new entrant or expansions in the market. Some of the
Advantages for the Canadian Businesses are:
With the data represented by the World Bank regarding the political stability of South Korea
highlights that it has a stable political environment and there is an absence of terrorism and
violence. This reflects that the level of corruption is also very less that could result in
decreasing the production cost and increasing the disposable income of the customers.
South Korea is the most advanced countries in the world in terms of infrastructure, with
advanced applications and internet accessibility. Both the private and public sector are
involved in the development of the country with high investment in the railways, mega-
resorts, roads, and airports. The newly expanded business can take advantage of advanced
infrastructure for the delivery or transportation of the products.
In terms of FDI, South Korea is considered as the world’s 20th top nation in 2017. The FDI
stock of the nation increased by 22% from the year 2016 to 2017 and touched 230 billion
(Banco Santander, 2019).
In addition, South Korea is being involved in the free trade agreements with the Canada
government in order to increase jobs for Canadian residents.
The country’s economy accounts for 2% of the world GDP
Issues in South Korea (Disadvantages for businesses)
In terms of cultural issues, language is considered the largest barriers for the business to
operate in South Korea because of the people of the country lack good Englishing

INTERNATIONAL BUSINESS 10
communication skills. Expanding business in South Korea can raise communication
challenges due to the language barrier.
In South Korea, people are encouraged to do high profile job in big MNCs, therefore the
government of the nation is visiting different start-ups of Korea to encourage them and
increase the level of innovations into the country.
Conclusion and Recommendations
From the above analysis, it has been analyzed that the government of South Korea is offering
different opportunities for Canadian businesses to expand their operations in the country. The
low corruption rate in the country reflects that the business can produce products at a low rate
and serve customers at reasonable prices. It has been analyzed that the country has stable
political as well as an economic environment that results in reducing the trade barriers and
threat of inflation. In spite of these positive aspects, country has some negative aspects that it
lack of English language communication skills, and low motivation for entrepreneurs.
However, both the barriers can be avoided because the South Korean government is coming
up with different schemes and motivational campaigns.

INTERNATIONAL BUSINESS 11
References
Banco Santander. (2019). South Korea: Foreign Investment. Retrieved from
https://en.portal.santandertrade.com/establish-overseas/south-korea/foreign-
investment?&actualiser_id_banque=oui&id_banque=0&memoriser_choix=memoriser
CIPE. (2014). A New, Entrepreneurial Growth Model for South Korea. Retrieved from
https://www.cipe.org/blog/2014/11/21/a-new-entrepreneurial-growth-model-for-
south-korea/
Continental currency. (2015). Korean Currency Spotlight: South Korean Won. Retrieved
from https://blog.continentalcurrency.ca/currency-spotlight-won/
Denmark In Korea. (2019). Korean Business Culture. Retrieved from
http://sydkorea.um.dk/en/the-trade-council/korean-business-culture/
European Commission. (2018). Countries and regions. Retrieved from
http://ec.europa.eu/trade/policy/countries-and-regions/countries/south-korea/
Export. Gov. (2018). Korea - Import Tariffs. Retrieved from https://www.export.gov/article?
id=Korea-Import-Tariffs
Export. Gov. (2018). Korea - Trade Barriers. Retrieved from https://www.export.gov/article?
id=Korea-Trade-Barriers
Fattouh, B., Scaramozzino, P., & Harris, L. (2005). Capital structure in South Korea: a
quantile regression approach. Journal of Development Economics, 76(2005), 231-250.

INTERNATIONAL BUSINESS 12
Global Affairs Canada. (2016). Canada-Korea Free Trade Agreement (CKFTA). Retrieved
from https://international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/
korea-coree/overview-apercu.aspx?lang=eng
Global Economy. (2018). South Korea: Political stability. Retrieved from
https://www.theglobaleconomy.com/South-Korea/wb_political_stability/
Gone 2 Korea. (2019). A Brief Summary of an Extraordinary Country. Retrieved from
https://www.gone2korea.com/about-south-korea/
Ro, J. (2002). Infrastructure Development in Korea. Retrieved from
http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN008650.pdf
Ship Technology. (2019). Hyundai Heavy Industries Ulsan Shipyard. Retrieved from
https://www.ship-technology.com/projects/hyundai-heavy-industries-ulsan-korea/
South Korea Economics. (2019). South Korea - Economic Growth and Development.
Retrieved from https://www.tutor2u.net/economics/reference/south-korea-economic-
growth-and-development
Trading Economics. (2019a). South Korea Labor Force Participation Rate. Retrieved from
https://tradingeconomics.com/south-korea/labor-force-participation-rate
Trading Economics. (2019b). South Korea Corruption Rank. Retrieved from
https://tradingeconomics.com/south-korea/corruption-rank

INTERNATIONAL BUSINESS 13
Appendix
Appendix 1
Source [(Banco Santander, 2019)]
Appendix 2
Source [(Trading Economics, 2019b)]

INTERNATIONAL BUSINESS 14
Appendix 3
(-2.5 weak; 2.5 strong)
Source [(Global Economy, 2018)]
Appendix 4
Source [(South Korea Economics, 2019)]

INTERNATIONAL BUSINESS 15
Appendix 5
Source [(Continental currency, 2015)]
Appendix 6
Source [(Trading Economics, 2019)]