Case study on south korea

Ques1 ) What was South Korea s political ideology prior to 1990? what caused the changes in ideology in the 1990 s? Explain briefly South Korea s ideology from 1990 s onwards. Which country was South Korea s role model? Ans. Politics of South Korea prior1990 s. : On August 15, 1948 the Republic of Korea (R.O.K.) was established, with Syngman Rhee as the first PresidentOn June 25, 1950, North Korean forces invaded South Korea. Led by the U.S., a 16-member coalition undertook the first collective action under United Nations Command (UNC). Following China's entry on behalf of North Korea later that year, a stalemate ensued for the final 2 years of the conflict. In the following decades, South Korea experienced political turmoil under autocratic leadership. President Syngman Rhee was forced to resign in April 1960 following a student-led uprising. The Second Republic under the leadership of Chang Myon ended after only 1 year, when Major General Park Chung-hee led a military coup. Park's rule, which resulted in tremendous economic growth and development but increasingly restricted political freedoms, ended with his assassination in 1979. The South Korea's philosophy concerning direct foreign investment had undergone several major changes tied to the changing political environment. Foreign investment was not allowed through the 1950s. There was little foreign investment activity until after the establishment of diplomatic relations between South Korea and Japan in 1965. Seoul launched its First Five-Year Economic Development Plan in 1962. The Foreign Capital Inducement Act was amended in 1966 to encourage a greater inflow of foreign capital to make up for insufficient domestic savings. A rapid inflow of investment followed until 1973, when the act was changed to restrict the flow of investments. Until the early 1980s, South Korea relied heavily on borrowing and maintained a somewhat restrictive policy towards foreign direct investment.

Major cause of change in 1990 s: Spontaneous forms of violence often occurred during student protest rallies in the 1950s, 1960s, and 1970s.By the late 1980s, violence-prone student radicals, although a small minority even among politically active students, demonstrated increasing effectiveness in organizing occupations and arson assaults against facilities. Anti-United States attacks in 1989 began in February with a seizure of the USIS library in Seoul

Composed primarily of students and labor union activists, protest movements reached a climax after Chun's 1979 coup and declaration of martial law. Thereafter, pro-democracy activities intensified even more, ultimately forcing political concessions by the government in 1987, including the

restoration of direct presidential elections. The economic relaxation was prompted by a belief that foreign entry would provide the much needed competition and lower prices in the retail sector. 1990 s onwards: In 1987, Roh Tae-woo, a former general, was elected president in 1987. Kim Young-sam became Korea's first civilian elected president in 32 years. In December 2007, South Koreans elected Lee Myung-bak, a former business executive and Mayor of Seoul, as president. The 1990s began with discussions of possible further changes in the fundamental law. The period from late June through December 1987 saw rapid implementation of political reforms in an unusual mood of compromise between the ruling and opposition parties. Constitution incorporated greater press freedom and protection for civil rights, a stronger National Assembly, and direct presidential elections. Under the liberalization policy, restrictions on foreign direct investment were eased in 1984 and 1985. In December 1987, Seoul announced a policy to liberalize the domestic capital market by 1992. Seoul planned to allow direct foreign investment in its stock market in 1992. Approvals of foreign equity investments reached an all- time high of US$1.283 billion in 1988, a 21 percent increase over 1987. One of the most noticeable economic achievements in the 1990s was Seoul's reversal of the balance of payments deficit to a surplus. Over the next few years, a wave of foreign retailers entered the country, opening 22 large discount stores by the end of 1999. The included Wal- Mart, Costco, Tesco etc. In recent years, Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. South Korea bounced back from the 1997 98 Asian financial crisis with assistance from the International Monetary Fund (IMF. These economic reforms, pushed by President Kim Dae-jung, helped Korea return to growth, with growth rates of 10% in 1999 and 9% in 2000. Economic performance in 2004 improved to 4.6% due to an increase in exports, and remained at or above 4% in 2005, 2006, and 2007. With the onset of the global financial and economic crisis in the third quarter of 2008, annual GDP growth slowed to 2.3% in 2008 and just 0.2% in 2009.

The Japanese, who dominated Korea from the late 1890s to 1945 and who governed Korea as a colony from 19l0 to 1945, were responsible for the initial economic modernization of Korea. South Korea closely adhered to the Japanese model of development. An agreement in June 1965 to establish diplomatic relations settled for a fraction of the "reparations" earlier demanded by Rhee, and Japanese fishermen were given access to South Korean waters outside of the three -mile territorial limit. Under the treaty, the Japanese government was to provide the capital necessary for an industrialization program and to open up ever-increasing loans, investments (both public and private), and trade.

Ques2 ) What was the impact on inbound FDI into South Korea as a result of its liberalization in 1990? Why Volvo acquired Samsung s construction Equipment Division (CED) in February 1998? Ans. ) The South Korean government removed many of the restrictions to foreign direct investment, including regulations that prohibited foreign firms from making hostile takeovers of Korean enterprises. The impact was quite substantial as a result of liberalization in 1990. FDI in the Korean economy surged from $3 billion in 1997 to $9.3 billion in 2000. The total stock of foreign investment in South Korea soared from $5.2 billion in 1990 to $62.7 billion by the end of the decade. While many Koreans initially viewed the new wave of foreign investment with deep suspicion, and the radical press demonized foreign companies as unwelcome guests feeding off the local market like leeches, the reality showed out to be different. This was proved by the acquisition of Samsung s money-losing CED by Sweden s Volvo in Feb 1998 for $572 million. Volvo's investment in Korea is all the more remarkable because it marks the first time in the history of FDI into Korea that control - and subsequently the manufacturing function - of an entire division has been transferred from the home country of the investing company - in this case Sweden. With a concentration of the "brightest and the best," company's core competencies of R&D and manufacturing technology are based in Korea. The acquisition of Samsung s CED by Volvo can be attributed to the following reasons: 1) The major focus was on excavators - the models built Changwon range in operating weight from 5 tons up to 70 tons and find applications in quarry operations, mining and major highway projects. The competency center now produces R&D initiatives that form the global standard for Volvo Construction Equipment worldwide. 2) Volvo needed to have a more globally competitive excavator offering. Volvo at this time operated a factory in the south of Sweden producing excavators - Volvo Excavators AB at Eslov - but the models were suited only for the Scandinavian market and hence lacked global appeal. In the process of meeting different players in the global industry to discuss options such as a strategic alliance, OEM relationship or acquisition, the Swedish company came into contact with the Samsung organization. While no agreement was reached, the two sides maintained good relations over the years. By 1998, however, the pace of Volvo's dialogue with the Korean manufacturer suddenly gained momentum. 3) From a strategic viewpoint, [the excavator] was a product that Samsung offered and Volvo needed, but having a manufacturing base in South Korea also gave Volvo a foothold in the Asian market. 4) The unit from SHI had one of the competencies as the R&D side as well as the manufacturing. Samsung had invested a lot of money over the years both in terms of physical facilities as well as in people. So Volvo was getting good competency from the people and a good environment that they could use as a base from which to go global.