Korea looking to bottom line in reform process

By Yoke Har Lee

South Korean companies will need at least another two or three years to become globally competitive again, says the deputy chairman of the Federation of Korean Industries.

Dr Sohn Byung-Doo believes all the macro indicators point to an economy in recovery.

But two main elements - one external and the other arising from South Korea's rigid labour market - could throw that recovery off-track.

Dr Sohn, in Auckland for the Apec CEO Summit, says South Korea must improve its labour market flexibility.

While discord between employers and unions has reduced since the intervention of the International Monetary Fund, disputes remain an obstacle.

"However, I believe the labour unions realise that the best way for them to gain wage increases is through increased productivity."

External factors such as rising oil prices and the possible devaluation of the Chinese yuan could also set back South Korea's economic recovery, he says.

Korean industries have also been changing the way they manage growth by moving away from emphasising market share to improving the bottom line.

"Korean management has had a mindset change. In the past their focus has been on expanding facilities, on how to enlarge market share.

"Now that's totally changed. They have become profit-oriented. They are also paying attention to cashflow.

"Another move is to concentrate on core businesses."

Dr Sohn first visited New Zealand while representing South Korea on the Pacific Basin Economic Council, a private-sector initiative providing research for policy formation.

He was then vice-president of the Korean Economic Research Institute.

That was during the reform era under Roger Douglas.

"It was very impressive [what New Zealand had done]. After I returned to Korea, I invited Mr Douglas to speak in Korea about New Zealand's reform experience."

Dr Sohn made recommendations to the former South Korean Government based on our reforms but it did not heed his message.

He says that since the Asian financial crisis, South Korea regrets not instituting reforms.

He is keen to come here again, saying he cannot tell from his brief visit whether the economy has indeed benefited from reforms.