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The ABCD Framework of K-Strategy The ABCD Framework of K-Strategy The Secret to Korea’s Success Hwy-Chang Moon Dean and Professor of International Business Strategy Graduate School of International Studies Seoul National University [email protected] Contents 1. The Janus Face of Korea’s Success 2. Review of Existing Studies on Korea’s Development 3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage 4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company 5. Implications for Economic Development 2 National vs. Firm Competitiveness Small and Medium-Sized Countries Firm Competitiveness > National Competitiveness Korea • UK • Korea • Italy • Spain National Competitiveness > Firm Competitiveness • Singapore • Qatar • Israel Firm Competitiveness Firm Note: Firm Competitiveness: Average ranking of Fortune Global 500, FT Global 500, and Forbes Global 2000 (All are based on 2013 data); National Competitiveness: Average ranking of IMD, WEF, and IPS-EE 2013 reports National Competitiveness 3 Different Performance: Economy vs. Society and Politics Three Major National Competitiveness Reports Korea’s Rankings IMD WEF IPS-EE World Competitiveness Global Competitiveness Report National Competitiveness Yearbook 2013 2013-2014 Research 2013 Sub-factors Rank Sub-factors Rank Sub-factors Rank Domestic Economy 19 Macroeconomic Environment 9 Demand Size 13 International Trade 14 Infrastructure 11 Demand Quality 11 Economy Firm Structure 14 & Tech. Infrastructure 11 Business Sophistication 24 Business Scientific Infrastructure 7 Innovation 17 Firm Strategy* 11 Business Legislation 39 Institutions* 74 Politicians 50 Society Social Framework* 42 Goods Market Efficiency 33 Bureaucrats 22 & Politics Health and Environment 28 Labor Market Efficiency 78 Quality of Labor Force 26 Management Practices* 50 Financial Market Development 81 Social Context (Entrepreneurs) 38 Overall Ranking 20 Overall Ranking 25 Overall Ranking 18 Note: 1) * represents the sub-factors including criteria related to “safety.” The figure in the parenthesis below represents Korea’s ranking. Social Framework: personal security and private property rights (42) Management Practices: health, safety, and environmental concerns (46) Institutions: security such as business costs of terrorism (106), crime and violence (60), organized crime (73), reliability of police service (47) Firm Strategy: health, safety, and environmental concerns (29) 2) The number of countries evaluated in IMD, WEF, and IPS-EE reports is 60, 148, and 62, respectively. 4 The Ferry Accident (April 16th, 2014): Social and Political Problem Many Problems • Speed • Late and inefficient reaction Agility • Precision • No manual • Imitation (learning) • No training Benchmarking • Global-standard • Violation of the “global standard” safety rule • Mixing • Mixed reports, mixed rescue teams Convergence • Synergy-creation • No control tower • Diligence • Captain stayed in his cabin at the critical moment of accident Dedication • Goal-orientation • Mission: the safety of passengers? Human Error or System Failure? 5 Economic Growth: Korea and Some Other Countries 30000 GDP per capita (US$) 25000 20000 15000 10000 5000 0 1967 1992 2004 1960 1961 1962 1963 1964 1965 1966 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 Kenya Korea Malaysia Saudi Arabia 1961 1971 1981 1991 2001 2011 2012 2013 Korea 91 300 1846 7,118 10,655 22,388 22,590 25,973 Kenya 95 153 406 336 404 800 943 1,073 Malaysia 287 404 1,796 2,626 3,878 10,058 10,432 10,946 Saudi Arabia - 1,122 17,544 7,846 8,760 24,116 25,136 25,163 Source: Data (1960-2012): World Bank World Development Indicators; Korea’s data for 2013: Korean Statistical Information Service; Kenya, Malaysia, and Saudi Arabia’s data for 2013: IMF World Economic Outlook (estimation). 6 Korea’s Economic Growth and Industrial Upgrade GDP per capita (US$) 25,973 (2013) 21,590 WTO OECD (2007) (1995) (1996) Capital Market 11,468 Open (1995) (1992) Imp. Substitution Exp. Promotion 1,042 91 (1977) (1961) Source: Data (1960-2012): World Bank World Development Indicators; Data (2013): Korean Statistical Information Service. 7 Foreign Perspectives: Korean Companies Cannot Succeed? • POSCO: IBRD Report - In 1968, Korea should first develop labor-intensive industries before steel. - Korea used a part of Korea’s claims against Japan for agriculture - In 1986, Dr. Jaffe in the general meeting of International Iron and Steel Institute (IISI) - Koreans were beyond common sense • Samsung Electronics: Mitsubishi Report - Five reasons to be failed - Korea’s market size, related industries, social overhead capital, company size & technology - A few Japanese companies helped - Semi-conductor VLSI tech from Sharp Corporation • Hyundai Motor Company: U.S. Consumer Report - The lowest rankings evaluated by U.S. consumers in the early 1990s - Worst! Never buy again! - Frequently cited at comedy shows - Junk! Toy! 8 Contents 1. The Janus Face of Korea’s Success 2. Review of Existing Studies on Korea’s Development 3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage 4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company 5. Implications for Economic Development 9 Existing Studies on Korea’s Development Study Argument • Learning existing Western technologies rather than innovation 1. Amsden (1989) • Efficient government intervention policy in the optimal allocation of resources • Outward, Industry, and Growth (OIG) strategy 2. Song (1997) • Confucian ethic as an underlying basis for development before • Land use, a family-planning program, savings and consumption behaviors • Rapid physical and human capital accumulation 3. World Bank (1993) • Government’s market-friendly policy • Abundance of good workers of high standard of literacy, discipline, and desire to grow 4. Cho (1994) • Vigorous entrepreneurship • Export-led growth strategy along with effective government development strategy • (1) government intervention, (2) US technical and financial support, (3) land reform, (4) 1997 Financial Crisis Financial 1997 transition from import substitution to export promotion, (5) authoritarian planning, (6) state 5. Toussain (2006) control over banking sector, currency exchange, capital flows and product prices, (7) US The Miracle of of The MiracleHan River protection, (8) education, (9) scarcity of natural resources • Slower rates of population growth favored investment in education and incentives for 6. Mason (1997) saving, which accelerated the economic development • The internal operations of Korean business groups and their role in the Korean economy 7. Chang (2003) • Financial crisis due to the failed adaptation to changing external environments by the business groups and Korean government • Learning and government policies for promoting economic growth 8. Eichengreen, Perkins, • Adaptation to the global economic environment and Shin (2012) • Rapid shift of export structure to focus on high-growth products • Export diversification Most of them focus on the economic success of Korea at the developing stage. 10 Conflicting Arguments between Studies Export-oriented Trade Policy Song (1997), Toussaint (2006) Amsden (1989) Korea’s economic success was due to its vs. The content of institutional frameworks export-oriented trade polices and the capacity to implement policies are more important. Industrial Policy and Structure World Bank (1993) Eichengreen, Perkins, and Shin (2012) The industrial policy of promoting several The industrial policy played an important targeted sectors (e.g., chemical and heavy vs. role for the transition from light to heavy industries) had little apparent impact on industry in the early stages of Korea’s industrial structure. growth. 11 Previous Studies and Porter’s Diamond Model 1: Amsden (1989) 2: Song (1997) Government 3: World Bank (1993) 4: Cho (1994) Firm Strategy, Structure, • Intervention: 1, 2, 3, 5, 8 5: Toussaint (2006) and Rivalry 6: Mason (1997) • 5-year plan: 4, 5 7: Chang (2003) • Learning: 1 8: Eichengreen et al. (2012) • Nurture of chaebol: 1, 7 • industry-orientation: 2 • New Confucian ethic: 2 Factor Conditions Demand Conditions • Fertility: 2, 6 • Growth-orientation: 2 • Human capital: 2, 3, 4 • Openness-orientation: 2, 5, 4, 8 • Savings: 2 • Land reform: 2, 5 • Scarcity of natural resources: 5 • Entrepreneurship: 4 Related and Supporting Industries • Institutions: 1, 8 • Education: 5 • US technical and financial support: 5 • Protection by the US: 5 Previous studies explain subsets of the determinants of the diamond model. 12 “What” vs. “How” Approach Existing Studies New Study “What” Approach “How” Approach • Superior resources • Similar resources - Cheaper labor - Similar labor cost, but HOW? - Higher technology - Similar technology, but HOW? • Focus on “input” factors • Focus on “process” factors • Static view • Dynamic view • Ex post • Ex ante Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 … • “What” Approach: X1, X2, X3, X4 … • “How” Approach: β1, β2, β3, β4 … As the gap in “What” factors has been narrowing, the “How” approach becomes more important. 13 Contents 1. The Janus Face of Korea’s Success 2. Review of Existing Studies on Korea’s Development 3. The Framework and Theoretical Background
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