The ambition of its companies and tenacity of its people have made the Korean capital a formidable world player, reports Alex Andersson
South Korea has gone from aid recipient to donor in a mere 50 years – an achievement spearheaded by the economic steam engine at its heart. The story of its capital, Seoul, is one of survival, tenacity and unprecedented success.
The city proper has about 11 million people and three buzzing central business districts – the centre of Myeong-dong; Seoul’s Wall Street equivalent, Yeouido; and the newer Gangnam, located south of the Han River in an area made up of rice paddies only 30 years ago.
The Seoul National Capital Area, which encompasses Gyeonggi province and the colossal free economic zone of Songdo, near Incheon (see “Songdo style”), is the second-largest metropolitan area in the world, after Tokyo, and houses about 23 million people.
This economic breeding ground spawned the emergence of domestic corporate powerhouses, or chaebols, such as Samsung, Hyundai, Lotte and LG. Their interests run the industrial gamut, from telecommunications to shipbuilding to international infrastructure developments – a dynamism that has propelled exports.
Foreign businesses have also flocked to the city, with Seoul hosting 22 global banks, 45 foreign securities services and 82 transnational insurance firms as of the end of last year, according to AIG. The city sits at a comfortable ninth place in the Global Financial Centres Index.
Comprehensive convention services and infrastructure have cropped up to cater to this growth. The standard of facilities and public transport is such that Seoul was the location for the 1988 Olympics and a host city for the 2002 World Cup and a 2010 G20 summit.
Geopolitically, Seoul is making the most of its historical and regional ties. Since the Korean War, it has retained close co-operation with the US, culminating in the bilateral free trade agreement (FTA) that came into effect in March last year.
This is part of a wider strategy to become an FTA hub country in North East Asia – Korea has established such deals with 46 other countries, a network unlike any other in the region. It reached an agreement with Colombia earlier this year, and is negotiating deals with 16 further countries, including China and Japan.
But the Seoul sensation is not without its shortcomings – a lack of transparency among regulatory bodies is an issue raised by many multinational corporations. William F Freeman III, president of AIG Korean Real Estate Development says: “Sometimes there’s red tape, and sometimes there’s a lot of political wrangling and haggling… but once that decision is made by the top-level person it is remarkable what this country can, and has, done.”
Nothing is more demonstrative of Seoul’s nurturing economic climate than the rise of the chaebols. Take Samsung, currently the ninth-largest company in the world in terms of brand value on Interbrand’s list. It has risen ten places since 2010, and is now the top non-US company, valued at US$32,893 million.
It may be at the forefront of the smartphone and telecommunications industry, but that is by no means its only focus. Samsung is the umbrella company under which more than 30 others operate, in fields ranging from electronics and semiconductors to shipbuilding and petrochemicals. It also runs charitable organisations, sells life insurance and operates the Shilla hotel and duty-free shopping outlets.
Having such a wide variety of interests is not uncommon among the chaebols – Lotte provides hotels, duty-free shopping, insurance, amusement parks, housing and oil services, while Hyundai is in construction, shipbuilding and logistics, as well as the automotive business.
That may seem intimidating to incoming business ventures, but the fact that the chaebols have a multi-pronged presence means they are able to engage and draw in different companies across the world. “The Korea Trade-Investment Promotion Agency has been very good at matchmaking Korean companies with those abroad,” says Amy Jackson, president of the American Chamber of Commerce in Korea. “The [chaebols] do not only promote their relevant industries or products, but also serve as advertisements for the positive aspects of Korea.”
A quarter of South Korea’s exports are to China, and a lot of the country’s exports are not end products but parts. Korea’s LG Chem, for example provides fuel cell packs for GM’s electric car department in the US. Such co-operation is what pushed Korea’s bilateral trade past the US$1 trillion mark for the second year running in 2012.
A liberal business environment is commonly associated with the rise of mega-corporations. But contrary to that perception, many international companies in Seoul point to the presence of corporate restrictions.
Freeman says:“When you go to Hong Kong or Singapore, you always hear that the regulatory environment is easy to do business in, and I think Korea could make improvements in which foreign companies are more easily able to set up business.”
There are signs that this is being done. In the past decade and a half Seoul has lifted the ceilings on foreign ownership of businesses and land, established free trade agreements with 46 countries and opened six Free Economic Zones. A catalyst for this was the Asian financial crisis of 1997.
The US Embassy’s Investing in Korea paper said: “Against this backdrop, the Korean government quickly responded in various ways to cure the structural problems of the Korean economy, which were considered to be the cause of the crisis. They recognised that attracting foreign direct investment was a shortcut to overcoming the economic difficulties.”
The FTAs are particularly important in this respect. The agreement with the US, called KORUS, will gradually eliminate all trade tariffs over the next decade. In the period after KORUS was put in place (March 2012-February 2013), US foreign direct investment into Korea reached US$4.5 billion, increasing by 113.6 per cent year on year.
If Seoul’s pursuit of numerous international FTAs is successful, it will open avenues for more such economic returns. Jackson says: “If there is an agreement with China and Japan [a third round of negotiations is to take place towards the end of the year] then Korea will end up having FTAs with 80 per cent of the global GDP… no other country, not Japan or China, has an FTA network like we do. And that will have a positive effect on export growth.”
Infrastructure has developed in tandem with the increased international business activity in the city. Incheon airport, opened in 2001, was rated the best in Asia-Pacific this year by Airport Council International. The subway system, meanwhile, is one of the world’s busiest and most comprehensive in terms of number of stops, and is affordable, clean and punctual.
Many point to the hosting of the Olympics as a turning point in this respect. Freeman says: “Really, the Olympics in 1988 was the catalyst that provided the initiative to kick-start this country, and a lot of Koreans would agree with that.” This global event coincided with a regime change from military dictatorship to social democracy, meaning Seoul was simultaneously showcased to the world and opened up to visitors.
Aside from the Olympic Park and Olympic Stadium complexes, it also led to the development of many five-star hotels and the entrance of international hotel chains to Seoul. This is something that has continued to develop, so much so that according to the Union of International Associations, Seoul hosted the fifth most international conferences of any city in the world for the third consecutive year in 2012.
The Seoul Tourism Organisation’s Meeting Planner’s Guide names 40 hotels with exceptional meeting facilities, as well as the Coex, 63 and SETEC convention centres. This high-quality base is what contributed to the successful hosting of the G20 meeting in 2010 and the Nuclear Security Summit in 2012.
Still, cracks in the city’s framework do emerge from time to time, the worst being the Sampoong department store collapse in 1995, which killed 502 people. This attracted widespread condemnation of bypassed construction laws and bribed officials. Although an exceptional incident, evidence of political influence in the construction industry can still be found in cosmopolitan Seoul, Freeman says.
“Take the Songdo IBD Project in Incheon. Although the residential component has done quite well, it has had a number of false starts and [has been affected by] the political environment,” he says. It has recently gained positive momentum, however, with the announcement that the United Nations Global Climate Fund offices will be set up there.
Songdo is not the only development that has experienced delays. The 554-metre Lotte World Premium Tower and the 334-metre Parc One both stalled a short way into construction, and now stick out like sore thumbs in Seoul’s ascending skyline. Freeman also predicts that such problems may blight the construction of the huge Yongsan Dreamhub project, which plans to include the world’s second-tallest building. “If it ever happens, it will take years and years and years,” he says.
Considering the speed of Seoul’s economic rise, black spots are minimal. Yes, there may be some red tape, but the government is taking clear measures to cut it. And yes, there may be signs of political wrangling influencing industry, particularly construction, but the rate at which impressive buildings such as the mixed-use commercial development IFC Seoul are rising far outweighs that of stalling projects.
Even the ever-looming shadow of North Korea has not been enough to stifle Seoul. “With North Korea, the geopolitical situation is clearly a shadow but obviously it has not been an impediment,” Freeman says, citing the large demand for office space in IFC Seoul that his company has experienced from international companies such as Sony and ING.
In the end, it’s the city’s people who have their foot on the accelerator. “This is a remarkable country, and clearly a remarkable people, when you consider the utter devastation and the income levels of Koreans in the early 1960s,” Freeman says. “The history has created a culture of people who are very hardy, nationalistic and proud of their heritage, and I think that is the reason why Korea has become so dynamic.”
Certainly, examples of South Koreans donating their personal gold during the 1998 International Monetary Fund bailout after the financial crisis, and the constant sense of urgency to moveforward, illustrate this point.
The bbali-bbali (“hurry hurry”) culture that is so often cited does not just refer to Koreans’ efficiency, but also their desire to perform, compete and succeed – and this is something you immediately sense when you interact with Seoul’s people.
“I’ve never been in any other country that operates as efficiently,” Freeman says. With such a solid fundamental economic base to work from, and the capability, pride and determination of its people, it seems Seoul’s ascent will not be plateauing in the near future.
