Ditch Korea for Korean Economy’s Sake

The author is a global director and the head of the Korean office of Bain and Company – one of the three major strategic consulting companies in the world along with McKinsey and Company and the Boston Consulting Group. He points out the fact Samsung Electronics’ stocks are traded at a 30 percent cheaper price than other foreign companies in the same level and claims that “discount (under-evaluated)” tendency appears every where in “Corporate Korea.”

This book contains an analysis of the causes of the “Korea Discount” phenomenon. The author, who has been working with over 100 corporate and government organizations in Korea, had a close look on what was going on in each of them. The Korean-American author, who left Korea as an elementary school student and experienced both American and Korean cultures, is quite outspoken and critical of Korean society.

Leaders… Leaders in Korea are Janitors in an Apartment Building?-

“I can’t help but scorn at the so-called ‘opinion leaders’ of this country,” he writes. So-called experts and professors kept quiet about Samsung’s new auto business in 1994 and criticized Samsung in unison when the foreign exchange crisis hit the country in 1997. Also, they didn’t comment much when credit cards were being blindly issued to anyone but started criticizing only after facing the “credit card crisis.” Those leaders are, even at their best, only good at reacting to the old news.

The author’s scorn of the people who pretend to be experts also goes to the executives of big corporations. One CFO (chief financial officer), who has supposedly been in the field for 20 years, didn’t know anything about the newest financial techniques, except for cash flow and credit loan management. It turned out that he hadn’t updated his knowledge since becoming an executive. The author declares, “They are like janitors in an apartment building; they are only interested in minimizing risk. They don’t know how to make a company profitable.”

Corporations… Everything is Possible When the Higher-up Says So-

The author thinks the unprofessional executives are the byproducts of the Korean corporate culture. Each of the conglomerates only makes profit from a few major companies while 20 to 30 mediocre companies in the same conglomerate depend on those profits. Even Samsung Group has no notable companies other than Samsung Electronics. Korean companies don’t properly compensate the talented executives. The ratio of the CEO’s wage to an employee wage is the second lowest in the world following Japan’s.

The results-oriented culture, in which procedures are often ignored, hurts principles. The author was surprised to see a CEO who defended an executive who recovered the loss from investing on a credit card company by investing in even higher risk bonds. Ignoring a principle means destroying the [corporate] transparency, a global standard.

A bigger company always bullies a smaller company in a precedence position. It doesn’t have any consideration for the other company with less power and this unfair convention is a norm in this society. The author confirms, “The world of business is inhuman but being inhuman and being unfair are not the same thing.”

Government … Can’t Believe Anything but Weather Forecasting?-

The author finds a typical example of “NATO” (No Action Talk Only) in the Korean government. While reviewing the 100 major policies of the current government for the next five years, he noticed that there aren’t many differences from those of the Kim Young-sam and Kim Dae-jung governments because those policies had been discussed previously but never executed.

The government still repeats the vision that Korea will be the international hub for finance, freight, and textiles. The direct foreign investment result started in the Kim Young-sam government is now behind the South Asian countries’. No one knows what happened to the 10-year plan for boosting tourism. The flood occurs every year in the same area, but there is no solution provided. The education system is restructured repeatedly. The author describes the whole situation as “being trapped in a perpetually repeated time machine’s route.”

Evaluation … Corporate Korea is Going to Run Empty –

Corporate Korea was evaluated in terms of the organizational success criteria such as strategy, structure, leadership, process, human resource, and culture, and scored 3 out of 7 (42.8 out of 100). This is not too bad. At least we don’t have to pack and leave the country right now, but the score is quite below the standard of OECD, a developed countries’ club which Korea already joined.

The author predicts Korea’s future economic drive will be knowledge-intensive service and the manufacturing businesses. He also points that the whole society has to change by getting rid of the “Korea Discount” causes as soon as possible.

This book may not be very different from previous books discussing the Korea’s issues. However, it is still helpful for us to think over the author’s warning, “Corporate Korea is running out time,” at this point where we are on the way to $20,000 GDP per capita.

Dong-Yong Min mindy@donga.com