The Korean Hub Strategy by Kiyoung Song B. S., Architectural Engineering Hanyang University, Seoul, Korea, 2001 Submitted to the Department of Civil and Environmental Engineering in Partial Fulfillment of the Requirements for the degree of Master of Science in Civil and Environmental Engineering at the Massachusetts Institute of Technology June 2003 2003 Kiyoung Song, All Rights Reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis in whole or in part. C Signature of Author: DepartmentFof Civiki~d Environmental Engineering AMay 9, 2003 Certified by: V Fred Moavenzadeh Professor o Civil and Environmental Engineering Thesis Advisor -' Accepted by: K/ Oral Buyukozturk, Chairman Departmental Committee on Graduate Studies The Korean Hub Strategy by Kiyoung Song Submitted to the Department of Civil and Environmental Engineering On May 9, 2003 in Partial Fulfillment of the Requirements For the Degree of Master of Science in Civil and Environmental Engineering ABSTRACT This thesis introduces the Korean hub strategy and evaluates its viability. For benchmarking analysis, two best practices - the Netherlands and Singapore, are compared with Korea. Competition issues are also studied with two potential contenders - Hong Kong and China, in the Northeast Asian hub race. To mount the level of advanced countries and to cope with the explosive economic growth of China, the Korean government sets up an ambitious plan; being the most successful business hub in Northeast Asia. Its strategic scheme is divided into two categories logistics hub and business center. For years, the Netherlands and Singapore have dominated as the regional hub with the unique role. The Netherlands focuses on the logistics in the Europe with solid regional economic cooperative system and strategic flexibility, while Singapore has had much attention to be the leading regional business hub in the Southeast Asia with strong government driven policy and the attractive national character - openness. With favorable regional economic environment and the China growth factors, in the Northeast Asian hub competition, Korea tries to grasp competitive advantage with relatively superior geographical location, technological advance and resourceful manpower. However, Hong Kong and China also have spurred their efforts to take advantage in the hub competition. With a pro-foreign environment and sound infrastructure, Hong Kong has already gained a leading position in the race. Meanwhile, China has an immense domestic demand and blazing speed of growth as strong merits to compete. To get a chance of success in the competition, Korea should overcome some critical barriers such as much entangled economic environment that might disturb regional economic cooperation, the weak level of competitive advantages in the various range of attributes that Korea possess, and currently risky political status in Korean peninsula that is caused by nuclear brinkmanship of North Korea. Unfortunately, considering overall competencies, Korea cannot offer any obvious credibility about their comprehensive capability to deal with those obstacles effectively and win the competition in the current frame of analysis. Therefore, the outlook of the Korean hub strategy is unclear and the viability of that also seems to be doubtful. Thesis Advisor: Fred Moavenzadeh Title: Professor of Civil and Environmental Engineering Acknowledgement My first and biggest debt of gratitude is to the God. You are the reason of my existence. I am especially grateful to my parents, who patiently gave me confidence to finish this whole work from the beginning. Without your dedicated prayer and supports, none of this would have been possible. Not forgetting my dear sister Jayoung, always thanks for your prayer and encouragement. I also deeply thank to Professor Fred Moavenzadeh for guiding me to complete this thesis and giving me sincere advices through great years here at MIT. Last, but surely not least, I would like to pass on my love and gratitude to Jung-A. It is one of my greatest fortunes to meet you in my life. Soli Deo Gloria. Table of Contents CHAPTER 1. INTRODUCTION 7 1.1. Objectives 7 1.2. Approaches 9 1.3. Structure 10 CHAPTER 2. KOREAN HUB STRATEGY 12 2.1. The Hub Concept 12 2.1.1. Perspective from Logistics 12 2.1.2. Economic and Business perspectives 13 2.2. Korean Hub Strategy 15 2.2.1. Overview 15 2.2.2. Basic Strategic Model 19 Logistics Hub 20 Business Center - Regional Hub for MNCs and Finance Center 23 CHAPTER 3. BEST PRACTICES 27 3.1. Overview 27 3.2. The Case of the Netherlands 28 3.2.1. Basic Features 28 3.2.2. The Logistics Hub of Europe 33 3.3. The Case of Singapore 3.3.1. Basic Features 37 37 3.3.2. The Regional Business Hub of Southeast Asia 3.4. Comparison 48 3.4.1. Economic Environment 48 3.4.2. Regional Economic Cooperation System 51 3.4.3. Openness to the World 53 3.4.4. Technological Advance 54 3.5. Suggestion 55 CHAPTER 4. COMPETITION 60 4.1. Issues 60 4.1.1. Strategic Perspectives 61 China 61 Hong Kong 65 4.1.2. Basic Infrastructure Capacities 72 4.1.3. Supporting Industries and Technologies 77 4.1.4. Geo-Economic Factors 79 4.1.5. Socio-Economic Factors 83 Education 83 National Image 87 4.1.6. Political Stability 90 Regional Level Perspective 90 Country Level Perspective 91 4.2. Conclusion 94 CHAPTER 5. GENERAL CONCLUSION 99 REFERENCES 103 Chapter 1. Introduction 1.1. Objectives The major objective of this thesis is introducing a newly announced Korean hub strategy plan and conducting the feasibility studies of it in the frame of national competitiveness in the Northeast Asian region. Since the world moving from physical and material oriented industry structure to nonphysical and knowledge oriented industry structure, Global competition among the nations becomes more severe than before. The nations' efforts to get fine opportunities for winning in the competition have unfolded in various and dynamic ways. The word "Hub plans" or "Hub strategy" is looming on the horizon, especially in Northeast Asian region and getting popular as the answer for the nations that pursued their main national development strategy. Considering the fact that Asia has already become the 3 rd largest economic joint system in the world and, naturally, the area, which can play a role as regional hub in terms of business, finance and even for the logistics, is indispensable to link among economic entities, Being hub nation or having that kind of areas in the nation must be a very attractive option for each nations in the region. Singapore already has enjoyed the firm status of the business hub in Southeast Asian region. Praised as one of most prospective countries by showing tremendous economic performance to the world, Republic of Korea (hereafter, Korea) was, suddenly but ironically somewhat expectedly, collapsed by economic crisis, which swept the Asian region in 1997. The effect of this catastrophe was far much worse than all Koreans thought. It meant that Korean development and growth model, which had praised from the world - government oriented and export driven policies with massive borrowing foreign fund had an initially critical problem. After 3 years vigorous restructuring program under guiding by International Monetary Fund (IMF) that was proceeded in all, private and public, sectors, even though it is still remaining some parts to improve and change, Korea has been successfully escaped from critical phase and returned to right track for growing into the level of advanced countries. After tasting bitter lesson, Korea has desperately pursued a brand new national development concept and prepared to make big growth into the upper stage of advanced countries. The result converged into the hub strategy of the Northeast Asian region. It is a mere effort to find a way for upgrading Korean economy and taking advantages in worldwide competition. Shortly, Korea's target in that hub strategy is being a main hub in the Northeast Asian region, especially focusing on the logistics and business sector. Before this hub strategy, the Korean government only concentrated on enhancing its internal strength and expanding the national infrastructure -structuring industrial complex, making highway, linking ports to facilitate export and building regional airport to cope with increasing domestic demands. Even though, the high-speed rail way building project that is currently on-going project might be the first trial to expand its development strategy out of Korean peninsula, its first intention was restricted in seeking an alternative way of saturated Seoul-Busan express way and rail road, which has been a national artery of transportation since 1970s. Consequently, Korean hub strategy is the first attempt of the Korean government to induce "Globalization" concept into Korean national development strategy. From this perspective, Korea's brand-new and even ambitious hub strategy is an intriguing issue and seems to have considerable merits to study in the frame of current global competition. 1.2. Approaches In this thesis, two ways of approaches are applied. First, to find the viable solution for the success of Korean Hub Strategy, two best practice cases are studied - the Netherlands as the logistics hub in the European region and Singapore as regional business hub in the Southeast Asian region. For common features, it is focused on their basic economic features, geo-graphical advantages. For different features, it is searched winning strategies and strategic alternation as the government's efforts upon the unique situation and the changes of external circumstances, especially about global economic changes and variation. Based upon these two cases, comparison analysis between Korea and two best practices cases is done. Four attributes are selected to compare and contrast: economic environment, regional economic system, openness to the world and technological advance. From the comparison analysis, finally, workable suggestion for the action plan of Korean hub strategy is pursued. Second, competition issues from the various spectrums about Korean hub strategy are studied: the possible competitors' similar strategies and its related context in the Northeast Asian Region. As two key competitors, Hong Kong and China are selected and analyzed with comparative factors such as - Strategic perspectives - Basic infrastructure capacities - Supporting Industries and Technologies - Geo-economical Factors - Socio-economic Development Factors: Education and National Image - Political Stability: Regional Level and Country Level 1.3. Structure Here is a comprehensive structure of this thesis. In Chapter 1, Overall Introduction of this thesis is described: The main objective of this thesis, the approaches to explore key topics and comprehensive structure of the thesis. In Chapter 2, Basic Hub Concept and Korean hub strategy is introduced. Regarding hub concept, it is divided into two categories - the one is logistics perspective and the other is economic and business perspective. As for presenting Korean hub strategy, first, broad picture of Korean economic situation and environment are introduced. Second, the basic strategic model of Korean hub strategy is followed. In Chapter 3, Two Best Practices- the Netherlands and Singapore cases, are analyzed. With these two cases, Korea case is compared to look into the similarity and dissimilarity of the strategic and base environmental situation. Finally, based on those studies, comprehensive suggestion for Korean hub strategy is proposed. In Chapter 4, Competition Issues in Northeast Asian hub race are analyzed. For this thesis studies, China and Hong Kong are selected two possible competitors. As competition issues, strategic perspectives, basic infrastructure capacities, supporting industries and technologies, geo-economic factors, socio-economic factors and finally political stability is studied for the hub race in Northeast Asian region. In Chapter 5, as the final chapter of the thesis, General Conclusion of the whole studies is induced. Chapter 2. Korean Hub Strategy 2.1. The Hub Concept 2.1.1. Perspective from Logistics Generally, the concept of the hub is started to use in airline industries. Modem airline systems have developed into 'hub-and-spoke' structures. This means that airlines tend to choose one or a few airports to have a more important role than the other ones in the airport network. Through these hub airports, an airline's traffic of a certain region is channeled. One example is Copenhagen Airport, which is a hub for the Scandinavian Airlines System (SAS). Much of the traffic from Sweden and Norway is channeled through this hub airport. In many cases passengers from the Stockholm region traveling to airports in Asia or North America have to change planes at the Copenhagen hub airport. (Ake E. Andersson, 2000) From the perspective of logistics industry, building a hub process has been developed so far centering on major airports and seaports of the region. However the procedures between air transportation and sea transportation shows a little bit different aspects. Even though main reason of making hub might be the same - because of scale of economies and scope, the institutional conditions for creating an airlines hub are also different when compared with the creation of a hub seaport. In case of airlines, it is much more related with the airline firm's corporate strategies or from the decision-making process of the cartel of airlines. However, in case of the seaports, it mainly comes by following spontaneous evolutionary market process (Ake E. Andersson, 2000) Hubs can have different geographical extensions. For example, Moscow is a very large gateway in terms of the volume and multitude of flows being channeled through that region. But the geographical extension and diversification is quite limited. Most of the traffic going through the gateway region of Moscow has the origin as well as the destination within the borders of Russia. The same is true of the gateways of Beijing and even of Shanghai in China. There main target of spread is limited the national borderlines. (Ake E. Andersson, 2000) On the other hand, there are examples of regions of rather limited size, such as Amsterdam or Frankfurt, which would qualify as European or even global gateways in spite of their much more limited size in terms of population or gross regional product. (Ake E. Andersson, 2000) 2.1.2. Economic and Business perspectives Until mid 70s, trade in goods and raw materials dominated global transaction. The worldwide economic action was mainly concentrated on the Western World powerhouses such as United States and some of the Western European countries. The nation, which has big seaports, could lead the world competition and the city like New York could hold the strong position as regional gateways of the World. However, the situation has been changed dramatically with the development of the technologies. Trade in services is grows rapidly, financial flows are getting broader increasingly in favor of the various economic entities growth and development throughout the world especially in Asia, such as Japan, Korea and Singapore. Moreover, India and China have emerged as the attractive markets in the world in terms of the valuable human resource and technologies. The exchange of knowledge and information becomes now a crucial shaft to sustain the development of any companies or industries and the cross-border characteristic is indispensable for this. Meanwhile, like Michael E. Porter has called it as 'industrial cluster', the phenomenon of similar industries aggregation has shown as well. It means that the various companies in similar industries gather in a specific area to draw synergy effects from the cooperation among them and also infrastructure shares without much considering about the national origin. (Michael E. Porter, 1998) This cross over inclination of doing business appears much more in the strategies of the multinational corporations. Consequently, rather than one central spot grows by the industrial function or clustering not by geographical location and it is started to call it as 'the hub.' Much of clustering of industrial companies, their major plants and control units at the seaside was a direct result of the industrial transport and communication infrastructures. Therefore, even though there were many trials among the nations to be the hub, only at a few hubs could have the simultaneous demand for efficient international trade and inbound commodity freight at reasonable cost. (Ake E. Andersson, 2000) As a result of that, only few cities or nations have held the strong status of the regional hub. Once after a certain region qualified as the status of the hub, various positive offshoots have appeared on the stage. For example, after magnificent human resources and institutions also started to gather in Silicon Valley or the near area, which already get the fame about wellequipped educational infrastructures. Promoting foreign investment and being absorbing outpost of the brand new technologies are constructive affects the hub areas can gain. Even though, there are many restrictions and preconditions to be the regional hub in terms of logistics or business, considering the proved diverse derivative economic effects, it must be an attractive option for the countries, especially now pursue a fruitful national development strategies. 2.2. Korean Hub Strategy 2.2.1. Overview Korea has achieved one of the fastest rates of economic development in the world. Between 1966 and 1996, its per capita income grew by an average of 6.8% annually, from under USD 100 in the 1950s to USD 10550 by 1997. (IBRD, The World Bank and OECD, 2001) During this period, Korean economic success formula has been simple. Scanty natural resource means that they had to import those resources and turn them into products to export. These tendencies had started from the light and labor oriented industries such as textile industry. However, since late 1980s, the then-under development countries' (i.e., Malaysia, Thailand) speed of chase was increased. And after mid 1990s, China has swept almost of all areas Korea once shined. Therefore, glorious success of Korea in that field could have not been lasted. The development shift had to continuously move to find viable area to compete such as heavy and technology oriented industries (i.e., electronics and automotives). Currently, in the overall composition of the Korean exports, the weight of those industries dominates and Korea is famous for its high-tech based industries and exports such as LCDs, microchips. (Kenneth, et al. 2000) Table 2-1. Performance of the Korean Economy before Economic Crisis, 1965-1995 GNP(US $ billion) Per captia GNP(US $) 1965 3.0 1975 20.9 1985 91.1 1995 451.7 105.0 594.0 2,242.0 10,076.0 9.1 7.4 8.9 6.6 GNP growth (real, US $) Industrial Structure (%) -Agr., Forestry, & Fishery 38.0 24.9 12.5 - Manufacturing 18.0 25.9 29.3 26.9 - Services 41.9 47.6 57.1 66.2 Commodity exports (US $ billion) Total exports/GNP (%) National savings rate (%) 0.2 9.5 13.2 5.0 28.0 18.1 26.4 35.3 29.8 123.2 33.7 36.2 Source: Kenneth et. al, 2000 Even though, the base industry composition of the Korean economy has been changed, a fundamental economy development plan was simply government oriented and focused on export driven system. 'Everything by the central government' had been only possible and viable strategy for Korea until early 1990s. (Kenneth, et al. 2000) Korean infrastructure projects had been with government-driven economy development plan for past 40 years as well. It was substantial but limited efforts to build up only internal capability to make growth from almost nothing after tragedy, Korean War. Like many under-developed countries at that time, there were no chances to consider deeply about the preparation for the international competition with other countries. These strategic approaches kept on and on. 'Growth and Expansion' were the main theme above all else. (Kenneth, et al. 2000) The most noticeable and prevalent tendency in making infrastructure project strategy or its parallel policy was mainly followed by its government driven Economic Development Plan. Unfortunately, this government oriented and export driven economic policy has an innately critical limit. First, its export volume has been too much U.S. oriented. Therefore, Korean exports volume had to fluctuate and varied often by U.S. economy situation. It had been desperately asked market variation to avoid "all or nothing" type of game. Second, building an economy block has been a dominating trend around the world. North American Free Trade Agreement (NAFTA) can be a good example. In this circumstance, acting solely without any economic ties or cooperation among the countries had become gradually disadvantageous. Even though, Korea seemed to have ridden on the right track and in some ways Korea practically earned a success and praised by peer countries in Asia and even from the world. However, the archaic system could not truly catch up with the speed of global trends. The economy catastrophe of Korea in 1997 is cumulative results of those innate problems. After two years of throbbing economic restructuring, the Korean economy is on the status of recovery and ready to regain economic dynamism. However, many hurdles are still remaining before Korea becomes a true advanced country like Japan, United States and some of Western European countries such as the Netherlands. In the progress of overcoming economic crisis, which was started in 1997, Korean government finally and seriously recognized that the needs and importance of top class competitiveness, which leaps over just standard level to survive in the infinite world competition. Korean government tried to find and evaluate competitive advantage in various areas and industries. Additionally, the words such as globalization, deregulation and decentralization come to be crucial these days for the Korean economy. Table 2-2. Performance of the Korean Economy after Economic Crisis, 1998-2001 1991-97 Private consumption consumptionr Govern •ment Gross fixed capital formation Construction Machinery and equipment Final domestic demand Stockbuilding 2 Total domestic demand Exports Imports Foreign balance 2 Gross domestic product 1998 6.4 3.7 -11.7 -0.4 5.3 -21.2 4.7 6.3 -10 .1 -3.88 5.7 -14.0 -0.1 -5.5 1999 11.0 7.9 1.3 3.7 -10.3 36.3 0.1 11.4 -4.1 35.3 7.6 4.2 2002 Third cquarter1 -1.7 5.8 -9.8 6.1 2.4 0.9 -3,8 7.7 8,2 2.0 7.1 4.1 5.4 -0.2 0,0 0,2 -0.1 8.1 2.0 7.3 4.2 20.5 20.0 1.0 -2.8 6.8 18.3 12,5 20.1 3.1 1.5 -0.7 2.5 9.3 3.0 6.1 5.8 -19.8 14.7 14.7 11.2 0.5 14.1 -22.1 12.5 15.8 28.8 -6.7 2002 First half 8.0 5.2 6.0 6.7 5.2 5.4 6.4 2000 10.9 0.2 1. Prelimrlinary. 2. Contribution to growth. Source: Bank of Korea, 20021 As a result of that, the Korean economy has been back right on track and started showing brilliant performance in the various economic indexes. Furthermore, Korean government has started to recognize that the explosive speed of the Chinese economic development would be the main menace of the growth of Korean ' OECD c , 2003 economy. Therefore, if Korea could not grasp any competitive edge in the economic development and growth competition with China in 5-10 years from now, Korea would fall into the place behind China and the future of Korea would not be unfavorable between the two economic giants in Asia - Japan and China. As following efforts to search an excellence in the global competition, in July 2002, Korean government presented a blue print for grasping competitive advantage. It was the hub strategies. It was an ambitious plan to make Korea as a business and logistics hub in the Northeast Asian region. 2.2.2. Basic Strategic Model The Korean hub strategy epitomizes into 3 categories - logistics hub, financial hub and regional business hub for the multinational corporations (MNCs). With structuring these 3 different hubs, the Korean government plans to build 5 Special Economy Zones (SEZs) in different areas of Korea. Following diagram represents the basic concept of Korean Hub Strategy. (MOCT, 2002) As represented in Figure 2-1, the Korean government focuses two parts in the strategy Logistics Hub and Business center. Figure 2-1. Basic Conceptual Diagram of Korean Hub Strategy Business Hub of Northeast Asia Logistics Hub - I HubAirport Business Center I~ Hub PortubofMNCs Hardware Hardware * IIA Project Completion * Busan, Gwangyang port Expansion * Eurasia Silk road Ambition * Int'l Business / Finance Hub Development * ITInfrastructure ExpansionlEnhancement * SEZs Designation Software Software * Structuring Logistics Network * Logistics Law I System Consolidation * Business Environment Improvement * Living Environment Improvement * MNCs - Multinational Corporations Source: The Ministry of Construction and Transportation, Korea, 20022 Logistics Hub Regarding Logistics Hub, there are two axes of transportation infrastructures, the one is the newly built Incheon International Airport and the other are two main seaports - Busan and Gwangyang. With these two axes, the Korean government wants to build national logistics network and it will supposed to be expanded out of the Korean peninsula, linking with North Korea, China and even Russia for completing so-called 'Eurasia Silk road Ambition.' (MOCT, 2002) 2 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom or http://www.moct.go.kr/InfoPlace/NewsCenter/ As key infrastructures of logistics hub strategy, the first phase of Incheon International Airport (IIA) construction project was completed in January 2001 and opened March in same year. Currently 2 nd phase construction, which will be continued until 2008, has been started in November 2002. 1 st phase of IIA construction was mainly focused on building basic facilities (i.e., runaways) for passengers' transaction and matching future increasing capacity, while the focus of 2 nd phase construction is moved not only into passengers' capacity, but also mega air-logistics volume. (MOCT, 2002) The Korean government expects that final phase of IIA construction will be completed by 2020. Table 2- 3. Incheon International Airport Facilities 2001 Construction Period Airport Facilities (After 1st Phase Completion) (After Final Phase Completion) 2000 - 2020 1992 - 2000 Plottage 3.55M pyong 14.35M pyong Runway 2 (3,750m x60m) 4 (3,750m - 4,200m x60m) Passinger Terminal Cargo Terminal 150,000 pyong 264,000 pyong 60,000 pyong 244,000 pyong Incidental Facilities 39,000 pyong 62,000 pyong 50,000 pyong (in progress) 450,000 pyong 660,000 pyong (in progress) 2,640,000 pyong 27Million 100Million 17000000 ton 70000000 ton Int'l Business Complex Airport City Annual Process Ability 2020 Passingers Cargo *1pyong = 3.954 sq. yds Source: MOCT, 2002 For mega hub port plan, Busan and Gwangyang port are selected as candidate ports. Even though both two ports have enough facilities to cover current demands, increasing rate of capacity has been started to be behind on the increasing rate of demand. Therefore, the Korean government will build 25 additional container wharf in Busan and 24 in Gwangyang by 2011. For expedite building process, Korean government changed its original financial scheme of fund raising for the projects from depending whole private capital to mainly public investments with inducing partly private capital. Furthermore, based on the hub plan, Korean government has an intension to develop the hinterland of Busan and Gwangyang from current simple cargo-working place to multi logistics base. Detailed action plan is still on developing stage. (MOCT, 2002) As the last sub-plan in hardware category for the logistics hub strategy is 'Eurasia Silkroad.' This scheme is basically concentrated on the linking plan between South and North Korea by land rather than other ways. Currently there are four main railways and several local road, which is penetrated Korean peninsular and has closed since Korean War between South and North Korea. Even though, not only economic consideration but also negotiation and agreement from the perspectives of politics and military are necessary for this ambition, its economic synergy effect will be clearly priceless if it is once re-connected, again. South and North Korea has already mutually agreed in re-connecting process of those inland ways and the construction process in the southern area of the truce line was completed for the one of four railways (Kyoung-Eui line). (MOCT, 2002) As for software part in the logistics hub, the Korean government has much attention in building comprehensive nation-wide logistics terminal by linking 5 major inland cargo bases throughout Korea. As specific action plan, Korea government will build mega logistics information database for inter-modal and base system and upgrade major inland cargo base in terms of IT perspectives. (MOCT, 2002) Furthermore Korean government will enact a related law for boosting the economic activity in the logistics industry, enhance government policies and also change the old system, which might hamper swift in international cargo transaction process. Business Center - Regional Hub for MNCs and Finance Center For the scheme of being the business center in the Northeast Asian region, First Korea wants to lure foreign companies- more specifically, regional headquarters or offices of the Multinational Corporation and take the center place for the Northeast Asian business activities. Korea also wishes to be a financial heart of the Northeast Asian region. As we well known, Hong Kong has already played a role of this, business center for the Northeast Asia, successfully so far, therefore, Korean government recognized that Hong Kong is the main target to overcome in terms of business hub competition. The Korean government's breakdown strategy regarding business center converges on primarily building 'pro-business' environment and as one of those essential features, the Korean government gives big notice on the magnificent IT infrastructure system is noticed by the Korean government. Because, since 1990s, Korea has shown great strength and brilliant performance in this field, Korea seems to have enough abilities to execute this plan. With that, Korean government will try to nurture talented labor forces in the IT industry by giving chance to learn at the world-famous institutes and also attempting to invite many distinguished scholars to educate Korean students. Drawing direct investments from the oversea IT companies is another tasks Korean government will do. (MOCT, 2002) Additionally, as another effort to make Korea as business center, the Korean government proposed to make exclusive area for foreign firms' business activity in Korea. Five Special Economy Zones (SEZs) will be set to facilitate making pro-business environment throughout the nation. Following are targeted areas for SEZs selection. - Youngjong Island for Air logistics center - Songdo Newtown for IT and Hi-tech center - Gimpo reclaim land for regional finance center - Busan and Gwangyang port for mega hub ports One of the unique factors of selecting SEZs is that 3 out of 5 SEZs is located near Seoul the capital city of Korea. It explains that all the main function of Korean economic activities and resources Korea can use are currently concentrated on Seoul or near areas. Additionally, the fact that Incheon International Airport, which will play a leading part of being air transportation hub, was also considered to choose candidate areas of SEZs. It also means that the Korean government bring into play again its 'selection and concentration' policy the Korean government has been dependent upon for long time. (MOCT, 2002) Figure 2-2. The Location Map of 3 SEZs near Seoul eoul You Source: The Ministry of Construction and Transportation, Korea, 20023 3 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom or http://www.moct.go.kr/InfoPlace/ Table 2-4. Major Contents of the Special Economic Zone Bill Contents Requirements for Special Economic Zone Procedure Incentives (Only for foreign companies) Management Organization * Well-equipped infrastructure like airports, ports, transportation network, water supply and electricity * Easy to secure sites and acceptable development cost * Positive infulence over local economy * Attractions for foreign investment * Supportive system by local government * Application by central government agencies or local governments . Final decision made by Special Economic Zone Committee by screening applications I Tax incentives (same as existing system for foreign investment) * Use of foreign language and foreign currency inthe zone * Supporting of social infrastructure including education, medical services and residence * Special Econonic Zone Comnittee * Planning department for the Special Economic Zone * Taskforce for the Special Economic Zone n Local governments Source: CEO Information, Samsung Economic Research Institute, Sep. 4 th 2002 According to the major contents of the SEZs bill (Table 2-4), which the Korean government brought up for the discussion, the suitable infrastructure system was the first requirement for the SEZs setting especially transportation network, water and electricity supply. With acceptable development cost, acquisition of proper sites to build up was considerable thing. Meanwhile, some striking proposals are also found in the bill. Even though, it said that 'restricted in the zone', using foreign languages and currencies can be one of those examples. Considering the current Korean's emotion about using foreign languages as their second languages is not that favorable, it might be somewhat impetuous. But, it also has enough values to take a risk. (MOCT, 2002) Furthermore, the Korean government seems to have a strong intention with deep and broad coverage about offering incentives. From various tax reduction incentives to building a special administrative unit in the government to housing, education and medical services also will be prepared for foreign investors and corporation. (MOCT, 2002) For the finance hub strategy, the Korean government focuses not only on building basic infrastructures but also, changing and upgrading related government policy and system into the above average level of OECD countries. Moreover, the sustainable reforming project of domestic banks, the securities companies by inducing clear market competition among the players is another concern of the Korean government regarding finance hub strategy. (MOCT, 2002) Chapter 3. Best Practices 3.1. Overview In the global hub competition, there are some nations or cities already have taken strongly competitive advantage position in their regions. The Netherlands and Singapore can be grouped in that category and both countries have shown a remarkable performance in each region - the Netherlands for Europe and Singapore for Southeast Asia. Meanwhile, the characteristic of their hub strategy seems to have been followed by very different approaches in each other and even somewhat unique. The Netherlands focuses on dominating the logistics and industrial value chain system and even creating new tradetransportation transference, while Singapore has had much attention to be the regional business hub and currently moved their focus to be the core center of the knowledge based industry in the region. Therefore, Both cases will be surely good prototypes as the best practice cases for Korea, currently sets two different goals and tries to pursue concurrently - logistics hub and business center in Northeast Asia, and seek strategically sound plan for each perspectives. 3.2. The Case of the Netherlands 3.2.1. Basic Features In the competition among the other European powerhouses such as Germany, France and England, the Netherlands has found competitive advantages and leverages to vie. The national strategy, which is focused on the trade and exports, has to be set and performed by the government That strategies would not work well even if there are no overall schemes from the government. And fortunately, the government orientation of the Netherlands has been worked very well so far. With the government leading in front, the fact that the private sectors have followed the government's policies well and even reacted very positive and even pro-active way to enhance the government's program is another unique characteristic of the success of the Netherlands' strategy. According to the report from the Netherlands Foreign Investment Agency, "the Netherlands holds for 9.4% of total EU an export, with just a little over 4% to the total EU population." It is quite one of the eye-catching facts that reflects how the Netherlands is oriented in trade. As a result, the strength of the Netherlands in trade logistics regarding is one of the main attractions to lure foreign direct investment to the nation. As a result, the Netherlands is 1st ranked as the most FDI recipient nation in Europe (Table 3-1). Table 3-1. The Foreign Direct Investment in Europe Recipient Netherlands %of Intra-EU FDI 1992-1997 16.7% Intra-EU FDI As a %of GDP 3.1% 1.0% 16.4% UK Belgium Germany France Spain Italy Sweden Ireland Austria Total 3.5% 13.7% 12.3% 12.1% 0.4% 0.6% 0.9% 7.0% 6.9% 2.9% 0.4% 1.4% 3.2% 2.2% 95.1% 0.7% 8.0% 4.9% Source: EC Directorate for Economic and Financial Affairs European Economy Supplement A: Report on Structural and Economic Reform inthe European Union, January 1999 Table 3-2. Overall world competitiveness ranking Country United States Ranking 1 The Netherlands 4 Singapore Denmark Hong Kong Ireland Germany United Kingdom Belgium France Japan 5 6 9 10 15 16 18 22 30 Source: IMD World Competitiveness Yearbook 2002 Additionally, according to the Economist Intelligence Unit (EIU), which assess the quality of the business environment in 58 countries, "the Netherlands is expected to be the best place to do business over the next five years (2003-2007, Global Outlook November 2002)." Table 3-3. Economic Performance of Netherlands in 2001 Economic Performance Gross Domestic Product GDP per capita Economic growth Government budget deficit 379,8 billion US$ 23,887 US$ 1.10% -0.34% of GDP(2000) Consumer Price Inflation 4.50% Long-term interest rate 540% Unemployment rate 2.5% of total labor force Foreign Trade Export of goods 229.83 billion US$ Export of commercial services 52.32 billion US$ Export of goods as %of GDP 60.51% Export of commercial services as %of GDP 14.15% Import of goods and commercial services 249.1 billion US$ Import as %of GDP Most important export destinations 67.40% Germany, Belgium, France an Source: The Netherlands Foreign Investments Agency, 2003 Regarding basic economic performance of the Netherlands, following brief description (Table 3-3), which is extracted from the information of the Netherlands Foreign Investment Agency 4. "The Netherlands' economy has a broad and solid base, and continues to be strong. Its gross domestic product puts it in fourteenth place worldwide (EIU). Also noteworthy is its position as the world's ninth-largest exporter (WTO). In the second half of 2002, the Dutch economy is expected to have grown by almost 2%, compared to the same period of the previous year. Thus, for 2002 as a whole, growth will probably turn out to be 1%. For 2003, the Netherlands Bureau for Economic Policy Analysis forecasts a GDP growth of 2.75%. The unemployment rate in Holland is only one third of those in neighboring countries, such as Germany, France and Belgium (Table 3-4). Table 3-4. GDP ranking for OECD member nations Country USA GDP in US$ (billions) GDP per capita in US$ 10,205.60 35,835 Japan 4,143.80 32,554 Germany 1,845.80 22,504 United Kingdom 1,426.70 23,978 France 1,305.60 22,169 Italy 1,088.70 18,783 Canada 700 22,572 Spain 581.8 14,726 Netherlands 379.8 23,887 US$ billions at current prices and exchange rates, 2000 Source: IMD World Competitiveness Yearbook 2002 (figures relate to 2001) 4 www.nfia.nl Globalization, the hallmark of the world economy in the 21st century, has become central to maintaining a competitive edge for major corporations. Thus, establishing a corporate presence in the European market, the largest consumer and industrial market in the world, is seen to be a prerequisite for organizations' overall goals. The Netherlands is proud of its role in this advancing process, as illustrated by the fact that over 25% of all industrial investment here has its origins abroad. No less an authority than The Economist Intelligence Unit (EIU) has declared the Netherlands to be the number one country in the world to do business in over the next five years." The Netherlands has been famous for the firm stability of political and social environment in the world as well. According to the IMD World Competitiveness Yearbook 2002, The Netherlands was selected as the 3 rd most stable nation in the perspective of political risks in Europe (Table 3-5). Table 3-5. Risk of Political Stability Country Ranking Ireland 9.19 United Kingdom 9.04 Netherlands Germany 8.91 8.6 7.7 7.21 France Belgium 0= very high /10 is very low Source: IMD World Competitiveness Yearbook 2002 3.2.2. The Logistics Hub of Europe The Netherlands is notably regarded as "the Gateway to Europe". Rotterdam, the main port city of the Netherlands, is the world's biggest seaport (in terms of total throughput, Table 36) and next, Amsterdam Schipol airport is ranked the second biggest airport in Europe for goods transport, moving 975,000 tones of goods each year. (Bombay Chamber Int'l News, 2002) Table 3-6. EU Major Ports, 2001 - 1998 Total throughput in EU's Major Ports, 2001-1998 2000 2001 322.1 314.6 Rotterdam 1999 303.5 1998 314.3 130 92.4 92.4 69 68.3 50.1 46.1 44.4 44 130.5 94.1 85.1 67.5 64.1 50.8 45 45.3 47.9 115.7 90.3 81 63.9 56.2 45.9 36 38.3 52.4 119.8 93.4 75.8 66.4 55.8 44.9 34.4 39.2 56.4 2001 6096 2000 6274 1999 6342 1998 6012 4248 4689 Hamburg 4082 4218 Antwerp 2800 2950 Felixstowe 2737 2915 Bremen 2653 2488 Gioia Tauro 2009 2152 Algeciras 1500 1530 Genoa 1464 1525 Le Harve 1388 1410 Barcelona Unit: Number x 1000 TEU's (Twenty Feet - Equivalent Units) 3738 3624 2697 2181 2253 1833 1235 1378 1236 3566 3266 2524 1812 2126 1826 1266 1319 1095 Antwerp Marseilles Hamburg Le Havre Amsterdam / North Sea Canal Area Genoa Bremen Dunkirk London Unit: Gross weight x 1 million metric tons EU Major Container Ports, 2001-1998 Rotterdam Source: Port Statistics, 2001 Historically, the Netherlands has shown great expertise in using sea transportation such as canals. This advantage has been critical to export agricultural products, more specifically horticulture goods. Those traditionally strength is continued and, at present, the Netherlands is the world 3 rd biggest agricultural export nation after United States and France with only 0.008% of the world land. (NFIA, 2002) Behind the Netherlands, there is world fragmented characteristic. 2 nd largest market - EU. EU market also shows very Therefore, the market having ample size and various diversifications can be a resourceful background the Netherlands can use various strategies to penetrate each uniquely structured market. (NFIA, 2002) However, this status would not be sustained so long without strong backbone export infrastructure system - seaport, airport, railway and roads. As one of the examples, the world biggest seaport, Rotterdam port and, the 2 nd biggest airport in Europe, Amsterdam Schipol airport are very closely located to facilitate cargo freight transaction between each other. Furthermore, the Dutch government has tried to sustain its already-dominating status of hub in Europe by launching various infrastructure projects such as 'Rotterdam Main port Development Project.' (T.R. Lakshmanan, 2001) The Netherlands also has many strong backbone industries to hold for role of the logistics hub - Agriculture, chemicals and petrochemicals, which need a strong logistics system and programs. For example, chemical industry, which is the 2 nd largest industry in the Netherlands and accounts about 18% of the total industry output, can be a signature industry much related with decent logistics system. (NFIA, 2002) Meanwhile, to support the hub program, the Dutch transport industry has been highly developed with over 1000 related firms and furthermore total integration in various transport system such as air to land, land to sea is firmly established. Recently, the Netherlands government focused and started to invest the programs for the Supply Chain Management (SCM) covering entire European region. (T.R. Lakshmanan, 2001) The Netherlands also shows a strong presence in the field of Information and Communication Technology (ICT) in Europe - Philips is the representative company in this area. The Dutch government put a top priority on this field to nurture, both independent industry and supporting industry for the logistics sectors, as future industry to win in the global competition. (T.R. Lakshmanan, 2001) However, only expanding and enhancing basic infrastructure and strong supporting industries would not perfectly guarantee the dominating status of the Netherlands as the logistics hub in Europe. The rapid but delicate strategic repositioning, which comes from the central government and even from the private sectors, upon the change of international circumstance, especially in trade sectors is another winning attribute the Netherlands possesses. For example, from the sea transportation point of view, the volume, composition, origin and destination of cargo have dramatically changed for years. Therefore, different approaches such as changing composition of the port's service activities, clustering and cooperation with logistics firms and transport companies to manage these changes have been necessary for the Netherlands. Along with this, proper and sound investments in the technologies and human & institutional resource also were followed to sustain core competitiveness of the Netherlands. (RMPM, 2001) The port of Rotterdam also uses a variety of sophisticated information systems, including INDRIS (Inland Navigation Demonstration for River Information Services). These systems can be utilized by terminals, inland shipping operators, and customs and other transportchain service providers. The port engages in knowledge-intensive operations, and it participates in creating new port knowledge infrastructure. Examples of such participation are the design of a container terminal of the future, a value-added dry bulk logistics project, and SIMLOG, a project focused on simulation techniques for logistics process (RMPM, 2001) In addition to this, the port of Rotterdam and the corporate sector particulate jointly in the Information Technology (IT) project for Port Community Rotterdam (PCR). PCR is focused on the creation of a faster, smarter design for a container transport logistical chain by developing, simulating, implementing, and managing port-wide information technology applications (RMPM, 2001). Such applications include Cargo Card, EDI-LAND, and ITmagination. The Cargo Card in an electronic card that rapidly identifies people and containers and cuts down on fraud. EDI-LAND is aimed at a uniform code for electronic messages among the corporate and public sectors. ITmagination is aimed at generating information and demonstrations of the proper use of information technology in transport and logistics for small and medium-size enterprises. Such investments in knowledge and competencies on the part of Rotterdam port reflect its shift from a transport facility that mainly ships, stores, and process raw materials to a center that engages in "added value" distribution and logistical management activities and coordinates the movement of cargo around the world. (T.R. Lakshmanan, 2001) As strategic redefinition of the ports future functions and investments that maintain growth in a dynamic economic situations, the Netherlands has developed to the crucial cities, which is out of the Netherlands, in its hinterland in terms of distance manageability and service quality add to attractiveness of the Rotterdam ports to its long-distance clients. (RMPM, 2001) Those efforts are linked with continuous expanding facilities and infrastructures of the various modal changing branches from the Rotterdam ports to each destination such as rail way. Moreover, focused on creating new markets is another incessant endeavor of the Netherlands. Rotterdam's investments in CSKD-Intrans, the Czech Republic's railroad operator can be a good example of those strategic approaches of the Netherlands. (T.R. Lakshmanan, 2001) 3.3. The Case of Singapore 3.3.1. Basic Features Singapore is traditionally the country that has been allowed for the government intervention regarding economic and social development, especially in the form of special organization or unit. Much of the institutional groundwork was laid in the 1960s and this involved the setting up of specialized organizations to control the development process, particularly in the areas of finance, the transformation of land use needed for development, and in attracting FDI. Furthermore, the government's effort to change the national environment for being probusiness was also continued. This transformation was achieved in a large part because of popular support from the people as a result of ideological gains from the government's reforms in housing, education, and health. (Stephen W.K. et al, 1997) Meanwhile, Singapore's swift and sound response in 1960s, the period of regional political uncertainties (the Indonesian confrontation and the separation between Malaysia and Singapore), enabled to draw much FDI as an industrialization strategy. The 1970s was the period where Singapore increasingly locked into the global manufacturing circuit as MNCs invested in Singapore. It was estimated that in 1975, 48.6% of the FDI in Asia ended up in continued so far. Singapore and those overwhelmingly presence of MNCs in Singapore has 63% of Multinationals presently account for over 90% of the manufactured exports and production. (Stephen W.K. et al, 1997) Figure 3-1. Geographical location of Singapore A rtLJRMA C1IA.h . <#'"' S Biang Vw o. *~ *2 J K -2 &A ~2 lo týSnso 0.~~~ 2 A PR NikIA$ -i " Sea B 24' Kual akaria XA%" iiiiir t'lag "A TI1 I ,i ~ IL~- q ~ IpobraINIi 212----~: t2"~~i Te-u '2 22 2 k~i 2' S 0W '' N 2 ' - h$E ' " r~itz2 - atlata - -N ThoD ItainLr twf " $rn : t s ~V ~~~iChg -d rr '.uaaatai -N 1) OiU I , ::.•.. "-:..:SINGA•PORE - P-,?-. S A: L . s Source: The library of Univ. Texas http://www.lib.utexas.edu/maps/cia02/singapore smO2.gif & http://www.lib.utexas.edu/maps/middle east_andasia/southeastasia ref 2002.jpg A .:. Basically, Singapore had two main industrial sectors to increase national wealth - garment and electronics. The garment industry was mainly supported by local and small firms and the electronics sector was driven by big MNCs such as Sony and Motorola. With this, before even industrialization ages, Singapore also dominated as entrepot trade sector in the region. Though it is the second smallest country in Southeast Asia, Singapore has served as an important trading outpost for the region for more than one hundred years (Poon, 2001). As shown in Figure 3-1, with deep natural harbor and geographical location center in the region, Singapore could have an advantage in trade by sea transportation. Singapore has long been recognized as one of the most competitive nations in the world. 6 According to the World Competitiveness Yearbook , from 1998 to 2001, Singapore ranked th 2nd most competitive nation in the world, while year 2002 ranking was 5 in the world (Table 3-7). Table 3-7. World Competitiveness Ranking, 1998 - 2002 Country/Year United States Filand Luxemburg Netherland Singapore Demark Switzerland Canada Hong Kong Ireland 1998 1 6 3 4 2 10 9 8 5 7 1999 1 5 3 4 2 9 7 10 6 8 2000 1 4 6 3 2 13 7 8 12 5 2001 1 3 4 5 2 15 10 9 6 7 2002 1 2 3 4 5 6 7 8 9 10 Source: IMD World Competitiveness Yearbook, 2002 6 Published by International Management of Development (IMD), annually, one of the world leading business schools, which is based in Switzerland Like the Netherlands, the fact that Singapore also shows a stable political and socioeconomical system is the fundamental strength for the Singapore economic structures and even for the role of the regional hub. For example, according to the Growth Competitiveness Index rankings by WEF, Singapore continuously ranked as 4 th, surely the highest among the Asian countries. Moreover, in the ranking of component indexes related with the soundness of macroeconomic features such as macroeconomic environment index and macroeconomic stability sub-index (Table 3-8), Singapore is the top-ranked even in the world in both categories. Table 3-8. Macroeconomic Indexes in GCI7 component Indexes, 2002 Rank 1 2 3 4 5 Macroeconomic environment index Singapore Macroeconomic stability subindex Singapore United States Hong Kong Australia Switzerland Norway Finland Switzerland China Source: WEF, 20028 The competitiveness of the public sector is another main driving force of the economy. Unlike other Southeast Asian countries, the official decision making process in the Singapore government is very transparent and understandably clean. By the survey of WEF 2002, in the contents of 'Transparency of Government policy making' at Public Institutions 7 Growth Competitiveness Index, WEF s http://www.weforum.org/site/homepublic.nsf/Content/Global+Competitiveness+Programme category, the Singapore governments ranked 1 st in the world. Moreover, general circumstance of the business in Singapore is very attractive to foreign investors along with Hong Kong. Regarding the subtle issues foreign investors or companies have concern such as labor-employer relations, Singapore shows good performance. 3.3.2. The Regional Business Hub of Southeast Asia As surging of Malaysia, Indonesia and China in late 80s, the economic restructuring and the moving of strategic perspective were necessary for Singapore. First of all, in the attack of ultra low cost labor and sheer international competition, especially from the China, the garment industry of Singapore struggled. Furthermore, increasing regulation by the United States and Europe-two main exports market of Singapore was fetal for the already lagged Singapore garment industry since 1970s. The less-systemized industry structure and shabby local firms, which were solely rely on the low profit margin by cost-leadership strategy without any technological innovation had no capability to cope with those hardship. Meanwhile, the electronics sectors have shown the different and sound reaction against those global competition and changes. First, because this industry was driven by MNCs, the industry structure has much better than others, arming with production efficiency, technological innovation, and long-term strategic vision. Singapore government also tried to be the regional business hub in the region. And rather choosing head-to-head competition with those challengers, Singapore selects the mutual growth strategy, by cooperation as hand in over the low-skilled assembly-based activity parts to Malaysia and Indonesia, and keeping core competency and the original strategic perspective - the regional control and coordination center for business activities (Perry, 1992). By the 1980s, a major node in the global production of electronic consumer and industrial goods and components was being centered in Southeast and East Asia. Singapore has also emerged as the one with the strongest supporting industries for electronics in the region. These factors, plus Singapore's good transportation, warehousing, and telecommunication support created favorable conditions, which led multinationals to center their purchasing arms in Singapore. (Stephen W.K. et al, 1997) Under the national policies and its attractive attributes, Singapore has emerged most prospective nations for setting regional headquarters in the Asia along with Hong Kong. As presented in Table 3-9, Singapore receives high points in the category of the 'Centrality to regional establishments, Telecommunications Infrastructure, Access to Customers and Quality of Business and Financial Provision' of the survey that is object for the MNCs, which has currently a Singapore office as their regional headquarters. Table 3- 9. Key Variables in Selection of Singapore Variables Centrality to regional estabilishments Telecommunications Infrastructure Access to Customers Quality of Business and Financial Provision Government Incentives Lower Operating Costs Number 54 42 37 35 13 2 Source: Poon (2001) In this survey, cost factor seems not to be a crucial factor to choose Singapore as regional center of MNCs, when they are considered the candidate areas. In other words, because other attributes such as sound telecommunication infrastructure have made up for the cost disadvantages so far, MNCs continuously do not much expect cost benefits and still feel attractiveness from Singapore. Moreover, upon the survey (Table 3-10) regarding after selection process, 'Political Stability and Telecommunication Infrastructure' was listed top twp attributes, MNCs please. 'Telecommunication Infrastructure' was already much-anticipated feature about Singapore, while 'Political Stability' seemed to be categorized in the unfamiliar features in deciding regional office area candidate, even though Singapore has been quite famous for its stableness of political system in Southeast Asian region. Table 3-10. Ratings of Singapore as a regional office Ratings* interms of Political Stability Telecommunication Infrstructure Quality of Business Services Centralityto Regional Estabilishments Proxidmityto Local Estabilishments Access to Customers Government Assistance Operating Costs * 1= very unsatisfactory, 5= very satisfactory Mean 4.58 4.54 4.03 4.03 3.99 3.96 3.41 2.32 Source: Perry et al. (1998) As noticed so far, the competitive advantage and success of Singapore as the regional business hub are mainly brought by its good geographical location, stable social and political system and above the average level of infrastructure offerings. However, in the trends of global competition era, the Singapore government figured out that only those advantages - production platform and commander center for the region, would not guarantee sustainable economy success of Singapore. Therefore, the Singapore government has pursued the way to keep current national competitiveness as the regional business hub and extend the span of its success. Figure 3-2. Singapore CSC9 Strategies Diagram Gvernment i Btsines s .•e ýthnng Str n Xterna Wý1aIrJ I __ __ ·__ _ ·__ atin Man~nactu and Services as Twtn Engines Strengthening World Class Small &Medium Ltocal Enterprises Companies - 1111l~l1 1 11111111·n1 111-_1~1 ......... ......... Source: The Ministry of Trade and Industry, Singapore, 200310 As a result of that, the Singapore sets a bunch of the brand national strategies such as Industry21 not just satisfying the favorable position as regional control hubs, especially for MNCs. The core concept of those national strategies is being knowledge economic hub in the Asian region. Following diagram (Figure 3-2) well presents that strategic goal of the Singapore government. Above strategies is actually based on the perception of the Singapore government like that " : "Knowledge-Based Economy (KBE) has become increasingly important to 9 The Committee on Singapore's Competitiveness 10 http://www.mti.gov.sg/public/VIS/ " Mapping Singapore's Knowledge-Based Economy, The Ministry of Trade and Industry, Government of Singapore over the years. The global market of products and services has become more technology and knowledge-intensive. At the same time, the Singapore economy is maturing. The build-up of capital and labor will slow and become less important as a driver of economic growth." Figure 3-3. Singapore Industry 21 Strategy Concept Diagram Source: Economic Development Board, Singapore 200312 Aforementioned, Singapore does not have any global leader companies, even in the electronics industry where takes up over 30% of the GDP output. It has long been the Achilles' tendon of Singapore economy. Therefore not just attracting foreign MNCs and depending much on them for national economy growth but also trying to nurture domestic companies, as global leader is a reasonable action plan for Singapore. Industry 21 Strategy can be made by this intention. Here is the summary 13 of Industry 21 and its concept diagram (Figure 3-3) Singapore, 2002 12 http://www.sedb.com/edbcorp/programmeindustry21.jsp 13 Excerpted from the Economic Development Board, Government Singapore "The Economic Development Board (EDB)'s Industry 21 (121) blueprint was launched in June 1998. Comprising a set of 6 programs, 121 was designed to promote Singapore's economic growth into the next millennium. It aims to develop Singapore into a leading competence center for knowledge-driven activities and a hub for the headquarters and product charters of multi-national corporations. The 121 programs include: - Cluster Development: Promote greater diversification among and within the key industry clusters, and also promote knowledge-driven activities across the valuechain of these industries. - Promising Local Enterprises/World-Class Companies: Build up local world-class companies, and root foreign world-class companies in Singapore. - Innovation: Promote innovation within companies and encourage them to develop new knowledge-driven capabilities and activities. - International Business: Tap into global and regional hubs for capital, new technology, ideas, resources and markets. - Headquarters: Attract foreign companies to set up their global headquarters in Singapore. - Resource Development: Develop a local workforce and attract foreign talent with critical skills necessary to support industry needs into the next millennium. It is envisioned that in the next 10 years, knowledge-driven industries under 121 would contribute 40% of Singapore's annual GDP, and generate employment of 20,000 to 25,000 annually. Two out of three jobs in manufacturing would be for skilled and knowledge workers, while in the services sector, three jobs out of four would be for skilled and knowledge workers." Another chronic problem Singapore needs to solve through driving those strategies is labor. The problem is not only one of cost, but also of supply. There is also a deeper side to labor turnover, which is industry-based. Part of the reason for this high turnover has been the volatile nature of the electronics industry, which goes through significant retrenchment cycles every four to five years. (Stephen W. K. et all, 1997) Therefore, Singapore government has focused much on nurturing the great pool of human resource and that trend also is shown 121 strategy. As we understand from the above, first of all along with manufacturing industry, the Singapore government moves the focus on the service industry and making both of them as dual shaft to drive the Singapore economy. And further development. Especially in the service area, knowledge-driven industry seems to be favorable one for Singapore such as education, healthcare and finance services and even for the manufacturing industries, Singapore government want to graft knowledge-based system on to that and ultimately prepare to the global competition. Moreover, surely for the sound execution of these strategies, the Singapore government will continuously support private sectors through providing pro-business environment. Through those new and transformable sets of strategies, Singapore pursues to sustain their premier status of the business hub in the Southeast Asia region. 3.4. Comparison 3.4.1. Economic Environment Looking overall economic outlook of the region as a non-competitive issue is meaningful, because the economic soundness is a fundamental factor for any business activities. Furthermore, being hub in any region means that there is enough economic transaction, in other words - the demand, which is necessary of hub cities or areas. From this point of view, Korea seems to be more blessed than the Netherlands. As for Singapore, even though there are some practical effects from the Northeast Asian economic boom, it is not that much than Korea or China will take. According to the September 2002 issue of the International Monetary Fund (IMF)'s World Economic Outlook, "global output expanded by only 2.2 percent in 2001. In the Asia, by contrast, output growth remained relatively robust, increasing around 5.5 percent in 2001." Fortunately, the overall economy size of the Northeast Asia region has grown with blazing speed in recent years and also has been expected to increase more. The economic transaction among the countries in the region has been done more dynamically as well. This will be surely good sign for the nations that join in this competition. For example, as it is shown in Figure 3-4, the trade volume weight of the Northeast Asian region has increased steadily from 11.4% in 1998 to 12.3% in 2000. The logistics volume of this region also increased continuously and the total logistics volume of the Northeast Asia region will be over 30% in 2006. That means Northeast Asian region will be one of the three biggest economy zone of the world, along with United States and EU. Considering these facts, there is big opportunity to build up a hub for the Northeast Asian economic community. Figure 3- 4. The economic indicators of Northeast Asia in the world 30.0% 20.0% GDP Weight of Northeast Asia in the World 2020 1999 * In 1999, United States 34%, EU 30% 11.4% Trade Transaction Weight of Northeast Asia in the World 1998 27.0% Logistics Weight of Northeast Asia in the World 1997 12.3% 2000 28.1% 2000 .1%. 30.1% . , 2006 Source: The Ministry of Construction and Transportation, Korea, 200214 Meanwhile, the economic growth and expansion of the Northeast Asian region comes mainly from the superb performance of the China in recent years. With notably cheap, but highly competitive skilled labor power, China has emerged as the "world factory of manufacturing". As a result, China's GDP growth rate has been dominated not only in the Northeast Asian region, but also in the other world. 14 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom As a matter of fact, Korea's one of the main targets in the hub strategy is the role of distribution centers of the multinational corporations in the Northeast Asian region. Therefore, Chinese huge market potential will be acted especially favorable for the foreign firms that consider penetrating the Chinese market. Table 3-11. GDP Growth rate comparison 1996 1997 1998 1999 2000 2001 2002 2003* 2004* China, People's Rep. of 9.6 8.8 7.8 7.1 8.0 7.3 7.9 7.5 6.9 Hong Kong, China 4.5 5.0 -5.3 3.0 10.5 0.1 N/A N/A N/A Taipei,China 6.1 6.7 4.6 5.4 5.9 -1.9 N/A N/A N/A Korea 6.8 5.0 -6.7 10.9 9.3 3.0 6.1 5.8 5.7 Japan 3.5 1.8 -1.1 0.7 2.6 -0.3 -0.7 0.8 0.9 United States 3.6 4.4 4.3 4.1 3.8 0.3 2.3 2.6 3.6 EU 1.7 2.6 2.9 2.8 3.5 1.6 0.9 1.9 2.7 Unless otherwise indicated, figures are based on constant market price * Projected by OECD Source: ADB, Asian Development Outlook 2002 / OECD, 200215 Consequently, considering the fact that the dynamic business transaction in the region is the most indispensable factor to build a business hub in any area, the current economic dynamism Northeast Asian region shows and optimistic possibility the region has play a role in very positive ways forming the hub. 15 http://www.adb.org/Economics/default.asp & http://www.sourceoecd.org/content/html/index.htm 3.4.2. Regional Economic Cooperation System With the efforts of their own, the role of the Netherlands as the logics center of the Europe is also blessed from the seamless economic and business integration of European region, especially transport related industry unification and multilateral cooperation about custom system. Basically, the European Union (EU), which is underpinning economic basin for the Netherlands, is the oldest and most highly evolved of the regional trading blocs that have developed in the second half of the twentieth century. Comprising fifteen countries with combined populations of 375 million, it has achieved much higher level of economic integration among its member states than any other trading blocs in the world. Aforementioned, given the large number of national borders within the EU area, the integration of transportation markets and infrastructure and the harmonization of transportation policies are critical preconditions for achieving free movements of goods and people, and it has shown remarkable success so far. (William P.A., 2000) One factor that distinguishes the European Union is that it is equipped with a set of powerful, supranational institutions that can make policy and even override the politics of member states. Furthermore, EU member states must relinquish jurisdiction over a broader range of economic, social, and environmental policy areas. In other words, the EU also has its own judicial institution, the European Court of Justice (ECJ). The ECJ has the critical responsibility of ruling on whether the laws and actions of national governments are consistent with EU law and whether laws implemented by the EU according to the legislative process described above are consistent with the Treaty of Rome and all later EU treaties. (William P.A., 2000) Meanwhile, creating an integrated transportation system within the EU area has required progress on three interrelated objectives: interoperability, free market access, and interconnection. Interoperability refers to the harmonization of technical standards for infrastructure elements ranging from rail gauge to air traffic control system as well as rules applying to service provides such as truck size and weight restrictions. Free market access refers to the removal of restrictions that prevent providers of transportation services based in one member state from operating in another. Interconnection refers to the problem of linking up national infrastructure networks. Connections among these networks were relatively sparse because many borders coincide with physical barriers such as mountains, rivers, and seas. The lack of connections also reflects the fact that national networks have been developed primarily to meet the domestic needs of member states. (William P.A., 2000) For example, to achieve interoperability in transportation systems, EU has successfully done two related tasks. The first is to set a common set of design standards at all new infrastructures. The second is to ensure that equipment and employees operating on existing infrastructure meet a common set of technology and safety standards. The program for achieving interoperability in high-speed train (HST) networks is a good example of this. Under this new approach to interoperability, the goal is to establish only those common standards that are necessary to achieve a smooth interface between systems, rather than stifle innovation by insisting on a full set of common specifications. (William P.A., 2000) Meanwhile, unfortunately, exclusively in Northeast Asia, there are no economic tie, cooperation system, or trading bloc, which can play a crucial role supporting regional economic integration, so far. Considering its economic size of this area, it is not easily understandable. Even though, for sound execution of hub strategy and achieving its success, building that kind of economic ties in the zone is indispensable, current situation is not that favorable. There are only loosen regional collaborative ties such as ASEAN (Association of Southeast Asian Nations) + 3 (ASEAN nations with Korea, China and Japan) and East Asian Economy Caucus (EAEC), under leadership of Malaysia. From Korea's perspective, obstacles to Northeast Asian economic cooperation exist both within and outside Korea. Within Korea, the main problems are the lack of regional identity and the strength of protectionism. The former one is represented by the uncomfortable or even remorseful feeling against Japan from the historical reason. The latter one is showing the trade policy of Korea. Korea has discriminated against its Northeast Asian trading partners by applying more restrictive measures. (Kap-Young Jeong et. al. 1999) 3.4.3. Openness to the World The Netherlands and Singapore has traditionally been opened to the other countries from the economic and social perspectives. It mainly has come from their innate advantage of geographical location and economic development policies and strategies. These inclinations to the outer world have facilitated to build basic infrastructures throughout the country and it surely makes foreign firms feel easy to penetrate domestic market and do economic activities in the country. As a one of gauges to measure it openness and fondness to the foreign countries, an excellence in using foreign language of people in both countries is clearly remarkable. In the Netherlands, the basic education system encourages students to learn 2 or 3 foreign languages in the early ages at school. In case of Singapore, the educational circumstance is similar as well. The English usage ability and proficiency of the Singapore students is topranked in the Asian countries.'6 16 IMD. 2002. World Competitiveness Yearbook, 2002, CD-Rom However, generally, Korea is a little bit behind in the race of openness. Even though, there has been much improvement in this factor, so far. It is also true that there is still much room to change and enhance. For example, according to the recommendation" from the World Bank Institute (WBI), "The government should continue with liberalization, especially with further deregulation in services such as telecommunications, financial news, and legal services....". Therefore, for the successful launching of the hub strategy, the Korean government tried to induce the enhanced policies and make visible and invisible infrastructures for showing its improvement in terms of openness in various ways. 3.4.4. Technological Advance Korea has similar advanced technology base to compete hub races such as in the IT and logistics industries like the Netherlands. But the difference is laid in the industry structures. However, the Netherlands has shown more combined technological advance and the government policy to support it, while the technological strength of Korea is much focused on the independent technology without comprehensive integration among sub-IT industries and the Korean government has struggled to support the industries by failing to set sound related policies and laws and also been unsuccessful to gain good returns from its public investments on this field. In the special report's from the World Bank Institute (WBI), the subsidiary organization of World Bank, the expert has already pointed out this kind of weakness of Korea like that: 17 Excerpted from "Korea and the Knowledge-based Economy: Making the Transition" IBRD, The World Bank and OECD. 2001. 18 IBRD, The World Bank and OECD. 2001. "Korea and the Knowledge-based Economy: Making the Transition" "Korea has the potential to become a world leader in information infrastructure if it can introduce the necessary institutional and regulatory reforms to enhance competition in the telecommunications sector and implement the recommendations below. However, it needs to make a sharper distinction between the advantages of the production of ICT hardware and technologies and those of its effective use and application. There appears to be too much emphasis on the former and not enough on exploring the potential of the latter." 3.5. Suggestion From both best practices - the Netherlands and Singapore cases, the Korean government can grasp crucial point to win the Northeast Asian hub competition. First, building regional economic cooperation system as soon as possible will be critical to judge the whole hub schemes not even for Korea but also for other competitors. As it looked from the Netherlands cases, it is the one of most crucial preconditions of the regional hub success. However, there are barriers to achieve the regional economic integration. To begin with, Japan and United States seem to feel uncomfortable about the concept of deep regional economic cooperation in Northeast Asia. Considering their own economic size and direct/indirect influences in the region, without their cooperation, successful launching of regional economic integration system is nearly impossible. Japan's hesitation to actively join to build the regional economic system, which might come from the reason of their much dependence on to the United States, is one of the main reason of lagging the process. The Japanese economy is interwoven very closely by way of trade and foreign investment with U.S economy. Thus, even though in recent years Japan's trade with Asia has surpassed its trade with the United States, the trade tie between Japan and United States is strong. Furthermore, United States clearly opposed to those proposals as well, because these are the formation of an exclusive economy bloc in Asia would have a negative economic impact on non-Asian countries. (Junichi Goto et al. 1997) Furthermore, Japan and China must overcome historical difficulties as well in seeking economic cooperation. There is a range of disputes that affect economic interests that they share in the region. Wartime history, domestic instability, and territorial disputes influence the relationship among them. (Stephen J.A., 1999) Second, more complex and refined strategy is indispensable. Moreover, strategic alertness and flexible adjustment upon the global situation are also vital. The former is for the initial success of the hub ambition; the later is for the continuation of that achievement. As well presented in the case of the Netherlands, being a regional hub is impossible by just making short-term and split strategies. Long-term, comprehensive and delicate approach is winning equation for the successful hub strategy. Moreover, the global changes in economic structures are fast unless the Korean government focus those revolution, the current hub strategy will easily turn to be archaic. The Netherlands have well reacted the extreme transformation of the global transport networks; the extreme variation for the inputs and outputs of production needs small and quick delivery system rather than big and bulky ones the Netherlands traditionally depends on. Throughout the transition, the Netherlands can hold the hub of logistics in the European region, firmly. Singapore also successfully changes from the offshore assembly center to the decision-making center in the region for MNCs. These two serve well as good example of strategic flexibility and adeptness against the external factor variation. Currently, because the time frame was short, Korean government did not have enough time to show strategic deepness of Korean hub strategy regarding each sub category, especially considering its wideness of strategic spectrum. Therefore, evaluating current scheme of Korean hub strategy that Korean government presents as the final product seems to be impetuous. However, Korean government should recognized that more detailed action plan, which can contain in-depth level of strategies, must be necessary in launching and executing hub strategy, successfully. Third, structuring good national images with political stability and sound socio-economic infrastructures to give credibility foreign investors is indispensable. It is categorized as soft or invisible factors. From the both cases of the Netherlands and Singapore, social stableness and excellent national image is critical to lure foreign investors and MNCs. Furthermore, it is also directly related with the performance of hub in terms of business center. The facts current tension between North Korea regarding nuclear bomb are big barriers Korea must overcome to win the competition. In addition to the national images, Korea, as a whole -from the public sectors to the private sectors, need to open more to the abroad with suitable attitude such as amicable attitude to oversea firms and sound capabilities such as proficiency in foreign languages and adaptiveness and flexibility in the social system. To be the business hub in the region, it is indispensable that the foreign firms and investors feel easy in doing their business in Korea more than any other places. Fourth, overall transformation that can cover up entire nation is necessary for the ultimate success in the hub competition not just for the restrained some special areas. Needless to say that 'selection and concentration' strategy is viable in initial phase of the projects. Similarly, choosing competitive areas and bending all national energies and resources on aimed areas, SEZs in Korea cases, may be the answer only for the short-term period. For example, aforementioned, structuring national images is quite important to execute hub strategy. However, those works and efforts cannot be applied for the only selected areas or systems. Even if it seems to be successfully applied in somehow, it is easily breakable status, because the basic fundamental is not changed. Fifth, comprehensive technology based trade-transport chain system is needed to be set, especially for the logistics hub strategy. On the contrary right above, this one will be included in the hard or visible factors. The mega-size airport and super seaport is one of the crucial preconditions to be the logistics hub. However, surely, it is not sufficient condition to win the game. From the Netherlands case, the state of the art value chain system throughout the supplier sides and client side is critical to build true logistics center, which can play a role of regional hub. For this, the wide-ranging and deep researches regarding the logistics mechanism in the Northeast Asian region should be conducted beforehand plunging into building new infrastructures or expanding existing ones. Moreover, current government's policy about technology advance in the IT field is necessary to be refocused from the way of comprehensive integration of the related technologies and even for the usages of those technologies. In other words, not only just nurturing a development of separate and individual technology skill for each own industry but also fostering broad combination of those developing skills for the hub strategies and the sound ways of that applications. Last, strong and even indomitable will of the government to execute the plan is vital to drive hub strategy. Even if the hub strategy itself is very workable and even has all preconditions to successfully win the game, without strong intension from the top, it is worthless. On the other hand, if the government has strong intention to achieve, it has a possibility to win the game even though some resources are restrained. The Netherlands have shown excellent expertise in this field, so does Singapore. Fortunately, Korean government has very strong conviction about the bright future of Korea as " the Northeast Asian Hub" and firm intention to execute its strategy from the beginning. The Korean government recognizes well that choosing the hub strategy will not be an option to forsake if it is unsuccessful. It is the national goal to survive and even win in the global competition. Therefore, for years from now, Korean government will put all the national resource to complete its strategic aim and success of it. This is an absolutely good sign for the Korea, in terms of an invisible but crucial factor that the nation must have. Chapter 4. Competition Korea's vision of the Northeast Asian hub is spurred partly by the similar and ahead efforts of rival Asian countries. Hong Kong and China has already started to get into the hub race and even grab a competitive advantage in a certain areas. Therefore, It will be useful to look the experiences of neighbors-Hong Kong and China, which Korea could take them as good cases for the detailed execution of the Korean hub strategy and its ultimate success. 4.1. Issues There are several issues to look as the preconditions of winning in the Northeast Asian hub competition. In this thesis, 6 attributes have been selected - Strategic Perspectives, Basic Infrastructure Capacities, Supporting Industries and Technologies, Geo-Economical Factors, Socio-Economic Development Factors and Political Stability. 4.1.1. Strategic Perspectives Strategic perspective is very important in terms of that it can be an indicator to show the current direction of strategy and future plan of each nation. Based upon that, it is possible to draw the competition frame: whether it is the competition area or not. China After joining World Trade Organization (WTO), China is more rapidly integrated into the global market. Actually, China already have played a role as 'sub-contractor to the world', using its ultra low cost advantage in the manufacturing sectors. Table 4-1. China's production position in the world, selected years, 1980-95 1980 283.9 1 i 2710 1 Item Grain (million ton) Cotton (million ton) 1985 342.6 2• 4150 1 6.8 8 Fruits (milllion ton) Meat (million ton) Aquatic product (million ton) 12.1 2 Steel (million ton) 37.1 62 10.6 30.1 49.9 12.3 0.45 2.49 i 4.5 3 Coal (million ton) Oil (million ton) Electrocity (billion kWh) Cement (million ton) Chemical fertilizer (million ton) Chemical fibres (million ton) TV Sets (million) Refrigerators (thousand) Washing machines (thousand) 5 3- 1. 6 ii1. 6 3 3 6 7 50 -I 50 - 11.6 7_ 19.3 2 7.1 46.8 87.2 12.5 3 4I1 5- 41.1 4 146 1 13.22 3 0.95 5 398.4 1 4150 18.7 28.6 12.4 66.4 108 13.8 62.1 209.7 1 4 2 1 4 1 4 4 1 18.8 3 1.65 16.68 3 26.85 1450. 9_9 4630 8870 1 6630 Note: figures incolored box are ranks inthe world's independent nations Source: Rongxing G., 1999 1995 1990 3 1 4 1 465 1 4500 41.9 50 25.4 95.4 124 15 100.8 475.9 1 1 1 1 1 1 5 2 1 25.6 1 3.5 34.96 9185 9525 1 1 1 1 Under the existing trade rules, China has already produced one third of the world's export of suitcases and handbags, a quarter of the world's toys, and one - eighth of the clothing. Namely, China seems to be hard to beat in low margin and quick-to-market manufacturing territories. (Peter, 2001) Table 4-1 shows another striking factors how China occupies the world production. The Chinese government has selected 'National Team' strategy to nurture its economic powerhouse and boost up the national economy, so far. In other words, the government has picked one or two firms in each industry and concentrated all available resources and financial support to those firms to grow up in a short time and enable to compete in the international market with global leaders of that industry. (Peter, 2001) Those national strategies of firms or industrial level have extended to the national economy strategy in terms of macroeconomic view. Moreover, due to its vast size of the country like United States, planning any 'comprehensive national strategy', which can cover the entire nation, is not appropriate for the China. This basic rule also has applied on the hub strategy. Therefore, the Chinese government has focused on its each independent area that has any competitive characteristic to contend in the race of Northeast Asia hub competition such as easy access to the excellent labor force. (Peter, 2001) Shanghai is one of those 'selected areas' and especially for the gateways of the China. According to the Chinese government (MFTEC, 2002), the strategic purpose of Shanghai is being 'the Hub', which can cover all around areas such as the hub of logistics (air and sea transportation), IT business, financial services and even tourism. And currently, its core program has been concentrated on 'Pudong New Area.' Pudong New area is, an area of 522.75 sq. km, located on the east bank of the Huangpu River that runs through the urban part of Shanghai. (Pudong New Area: http://pudong.shanghaichina.org) Figure 4-2. Map of Shanghai and Pudong New Area Source: The library of Univ. of Texas & Map of Chinal 9 Pudong New Area stays on its hot track of growth and expansion since the opening in 1990. In 1990, at an initial stage of the development, the local GDP of Pudong was a mere USD 725 million. In 2002, the GDP soared to USD 15 billion. The average annual GDP growth rate over that 13 years span is about 20%. (Pudong New Area: http://pudong.shanghaichina.org) Moreover, the result is quite more impressive when you look at the chart of overseas investment of the Pudong New Area. Comparing with Hong Kong SAR, Pudong New Area is surely dominated in terms of project number (including both completed and currently ongoing projects), total investment and contractual investment. 19 http://www.lib.utexas.edu/maps/cia02/chinasmO2.gif & http://www.maps-of-china.com/shanghai.gif Figure 4-3. GDP of Pudong New Area 20 16 14-1 12 10 8 6 4- 2 0. . n i Ul~i~i! 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: Foreign Affairs & Int'l Cooperation Office of Shanghai Pudong New Area Administration, 200221 Table 4-2. Comparison of Overseas Investment Country/Region Pudong HongKong SAR New Area USA Japan Project Number 5,942 2,423 835 760 Total Investment 29.443 9.471 5.031 4.589 11.558 3.196 2.623 1.341 (US$/Billion) Contractual Investment (US$/Billion) Source: Foreign Affairs & Int'l Cooperation Office of Shanghai Pudong New Area Administration, 200222 20 21 22 GDP of 1991 is not available http://pudong.shanghaichina.org/overall.html http://pudong.shanghaichina.org/overall.html Considering the process of Chinese government's hub strategies so far, the Chinese government seems to accomplish too many things at once and without any hierarchies on the process, the Chinese hub strategies seems to be somewhat ambiguous and have the possibility of falling into the futile ambition. Especially, domestic market is too segmented to manage by the central government in terms of geographically and economically. Therefore, it is hard to find any cohesive characteristic in each strategy. For example, the strategic relationship between Hong Kong and other strong candidate areas in land for the hub competition such as Shanghai seems to be very unclear. Because, there is enough geographic distance between Hong Kong and Shanghai and current status is preliminary stage, no head-to-head hub competition between two will not occur in a short time. But, harsh competition between two that might cause a zero-sum game seems to be indispensable in the end, if there is no definitive segregation regarding each role and attribute in the frame of hub strategy. Hong Kong As a city-state like Singapore, Hong Kong did not have many choices to select for its economic flourish. Basically, mountainous land and the lack of new cultivable land made Hong Kong avoid getting an extension in the agriculture industry. Furthermore, obsolete system of land tenure and property rights in new territories was also unable to pursue development in that field. (Mick C. et al, 2000) Within manufacturing, the choice of sector and the nature of the activities within in sectors were also constrained in a specific way. (Mick C. et al, 2000) Above all, small domestic market in terms of absolute concept was a critical hamper to boost domestic companies and explore domestic market and that characteristic also influenced the provision of service support only for export. Moreover the territory's resource endowment and comparative advantage aimed sales overseas on the basis of cost leadership in labor-intensive parts with low entry barrier such as textiles and apparel, plastic products. (Mick C. et al, 2000) Moreover, physical and cultural distance from the main market made it too costly for Hong Kong manufacturing firm to identify the actual needs of final consuming household, agency. Therefore, skilled labor, technological expertise, which would have needed to transit the needs into product design and process phase were not basically available. It forced to Hong Kong manufacturing firm to rely on their foreign customers in the territory and restricted manufacturing industry from the technological and managerial innovation. Therefore, not only just low prices market but also low product specification segments are the main target for Hong Kong manufacturing firms. (Mick C. et al, 2000) Furthermore, with this, one of the Chinese traditions - much family oriented mind affected to the basic form of Hong Kong manufacturing companies - small, family-tied business. As a result of that, low price focusing industry sector was driven by domestic firms. On the other hand, high capital oriented industry sector such as banking, telecommunications and transport infrastructure was pulled by foreign firms. (Mick C. et al, 2000) In 1980s, the Hong Kong economy was confronted in the sudden changing situation by emerging China as strong competitors, especially in the main area Hong Kong has competitive advantage- textile and apparel industry. Rising labor cost played a negative role as well for the Hong Kong economy, which had long been based on low-cost policies. (Mick C. et al, 2000) However, in this time, although Hong Kong might have a chance to reform its economic structure much more focusing on the technology parts like other NIEs, Korea and Taiwan, Hong Kong did not try to focus on the national industry restructuring programs. For example, importing many labor forces of much lower cost from China to sustain its old business competitiveness rather than investing on technology innovation. However those approaches could not solve the intrinsic problems Hong Kong economy had. (Mick C. et al, 2000) Meanwhile, after losing their competitive advantage continuously in the main market, Hong Kong government finally and seriously considered the reorientation and upgrading methods of Hong Kong industries. Since then, Hong Kong started to focus on finance industries where Hong Kong has been famous for its entrepot ages. Restructuring based on finance sector was less radical because a large number of expatriates had long been working for the industries. The entrepreneurial mind was pervasive throughout the industry. Moreover the governmental efforts to lure MNCs in high capital-intensive industry were continuously progressed as well. (Mick C. et al, 2000) Table 4-3. GDP by Industry in Hong Kong, 1961 - 1991 (in percentage) Industry Agriculture and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale and retail trades, restaurant and hotels Transport, storage and communication Financing, insurance, real estate and business services Community, social and personal services Ownership of premises Nominal sector Unclassified 1961 1970 1981 1991 3.3 0.3 24.7 2.4 5.3 20.4 9.4 9.7 18 6.5 N/A N/A 2 0.2 30.9 2 4.2 19.6 7.6 14.9 18 N/A N/A 0.6 0.7 0.2 22.8 1.4 7.5 19.5 7.5 23.8 13.3 9.8 -6.5 N/A 0.2 0.05 15.5 2.2 5.3 25.4 9.7 23 15.4 10.7 -7.4 N/A Source: Stephen W.K. et al, 1997 Table 4-3 is GDP distribution by industry in Hong Kong from 1961 to 1991 and Table 4-4 is distribution of working population by industry in Hong Kong during the same time frame. As presented, the change of industrial trends in Hong Kong can be tracked by these two tables. Finance related industry and tourism related industry have been grown so much, while manufacturing industry has been waned. Table 4-4. Working Population by Industry in Hcong Kong, 1961-1991 (in percentage) Industry Manufacturing Construction Wholesale and retail trades, restaurant and hotels Transport, storage and communication Financing, insurance, real estate and business services Community, social and personal services Others 1961 43 4.9 14.4 1970 47 5.4 16.2 7.3 7.4 1.6 2.7 18.3 15 6.3 10.5 1981 41.2 7.7 19.2 7.5 4.8 15.6 4 1991 I 28.2 6.9 22.5 9.8 10.6 19.9 2.1 Source: Stephen W.K. et al, 1997 Additionally, since 1990s, the other industry sector Hong Kong concentrated on was newly introduced IT industry. Actually, this industry seemed not to be much favorable sector. Because it is high-tech industry and it needs big economy of scale and a certain amount of time to get back investments. Considering the characteristic of Hong Kong economy that has followed the market economy system - profit based system; it is nearly impossible to develop this industry without the governmental fiscal supports and strategic perspective. Since July 1St 1997, Hong Kong has been a Special Administrative Region of the People's Republic of China (SAR), Hong Kong has set a national strategy, which is called " Digital 21". As guessed from its title, it is mainly focused on technology sectors, especially in IT industry. The Digital 21 strategy has been continuously renewed and adjusted its detailed direction upon its necessity. Currently, "2001 Hong Kong Digital 21 Strategy: Connecting the World" is on the way to go. Figure 4-4. The map of Hong Kong and Vicinity - - --- - - - -- - - ---- - - - - - - - -- - - - - - -:-.;- - - :-"i''iii'ii- - - - - - - -"i':i~i~-"i~i 2 Source: The library of Univ. of Texas" 23 http://www.lib.utexas.edu/maps/middle_eastand asia/hongkongpol98.jpg According to the announcement of Hong Kong government 24, contrary to its predecessor government under British control, Hong Kong considers IT business as their foremost economic drive engines and as a specific action plan of this, private investment of 1.7 billion US dollars is planned for building new IT and telecommunication infrastructure in Hong Kong next few years. Additionally, the Cyberport, the strategic clustering action by Hong Kong government and private sector on Hong Kong Island also will be completed by end of 2003. Here is brief summary of "2001 Hong Kong Digital 21 Strategy25". - To enhance the world-class e-business environment in Hong Kong by developing our telecommunications, IT, broadcasting and multi-media content production capabilities, actively pursuing the flagship Cyberport project, etc. - To ensure that the Hong Kong Government leads by example by driving egovernment, providing e-option for more services, and actively pursuing eprocurement and outsourcing. - To develop Hong Kong's workforce for the information economy by improving the quality and quantity of local IT manpower, nurturing our young generation and leveraging the supply of IT professionals from the Mainland of China and overseas. - To strengthen the Hong Kong community for digital exploitation by improving accessibility, especially for those who have less opportunities to use IT in their daily lives, and cultivating a community that takes advantage of the information economy. http://www.brandhk.gov.hk/brandhk/e_pdf/efact4.pdf 25 Directly excerpted from Digital 21 website <http://www.info.gov.hk/digital21/eng/strategy2001/> 24 - To leverage Hong Kong's strengths in exploitation of enabling technologies in areas of next generation wireless communication, smart card technology, digital broadcasting and Internet 2, etc. Additionally, Hong Kong also do not remove the eyes on the tourism industry- another strong industry Hong Kong has appealed to the world for a long time related strategy. A record 13.06 million visitors, up 15% over 1999, came to Hong Kong in 2000, generating US$ 7.88 billion in revenues and contributing about 5% of Hong Kong's GDP. (Hong Kong Reports, 2001) For keeping this advantage continuously, from the perspective of expanding facilities, first, Hong Kong Disney is currently built near Chek-Rap-Kok International Airport and targeting to open in 2005. According to the Hong Kong report, Hong Kong Disneyland is expected to attract over 5 million visitors, including 1.4 million new tourists, and stimulate additional spending of US$ 1.1 billion. These figures will more than double over a period of between 15 and 20 years. (Hong Kong Reports, 2001) Moreover, a new cruise terminal in the harbor, a second convention and exhibition center, a new major performing art venue, and a multi-purpose stadium capable of staging a wide variety of events and able to hold more than 40000 people. Meanwhile, a part of the strategy reorientation, Hong Kong designed the city into Asia's world city as a top-class destination for leisure and business visitors. (Hong Kong Reports, 2001) Consequently, considering the Hong Kong government's announcement and strategic perspective, Hong Kong's first and foremost target is to be the regional business hub with two strategic wings - IT hub and finance center along with sustaining its already status as one of most popular tourism destination in the Asia. The fact that Hong Kong currently chases to be business hub in the Asia, its strategic perspective is much overlapped the Korean one. 4.1.2. Basic Infrastructure Capacities To be the hub in a certain region, especially for logistics, it is essential that supporting of the proper and resourceful infrastructure facilities, which can dominate other areas in terms of size and efficiency. For instance, mega airports and seaports will be indispensable for the air and sea logistics center. Meanwhile, the easy high-speed Internet access is one of crucial factor to build international business center. Generally, each of three nations has strong basic infrastructure facility features in Northeast Asian region. As presented Figure 4-5, Korea seems to be a slightly upper position regarding air transportation. For example the utilization cost26 (i.e., the take off and landing fee for an airplane at IIA is $2,810, compared to $5,388 at Fudong Airport in China) and handling capacities of passengers and air cargo. It is mainly by Incheon International Airport, (IIA) which is opened in March 2001 with eight years and four months building periods. Moreover, due to its ideal location - 43 cities with over 1 million population in 3.5 flying hours distance, IIA emerges as a strong contender of hub airport in Northeast Asian region. 26 Data from Incheon International Airport Corporation, 2002 (http://www.airport.or.kr/pds/airports/asiajsp) Figure 4-5. Comparison chart of the major Northeast Asian airports 12 10 10 RI 87. ~~--~- 8 6 -5- 4 2 i nY Korea (IIA) Hong Kong (Chek Lap Kok) China (Fudong) Singapore * Passengers (10Omillion / year) 0 Cargo (1million ton / year) Source from: The Ministry of Construction and Transportation, Korea, 200227 Meanwhile, in the area of sea transportation, Hong Kong has been blessed with the hub of Asia, at least its images. However, generally, all three nations have already strategically developed the seaports for a long time as well. Therefore, there is no remarkable nation dominating the region at present. In terms of the volume of container, Hong Kong can be the top among the three (Table 4-5). However, considering the increasing rate of container volume and number of ports in Korea and China, currently gap is not that considerable. 27 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom Table 4-5. World Major Container Ports, 2001-1998 Hong Kong* 2001 11,285 2000 11,603 1999 16,200 1998 14,582 Singapore Busan + Gwanyang (Korea) 15,520 8,928 17,090 8,182 15,945 6,857 15,100 5,924 7,426 6,275 5,613 4,879 4,600 4,248 - Units) 6,985 6,342 4,216 3,829 4,408 3,738 6,271 6,012 3,066 3,378 4,098 3,547 7,540 Kaohshiung 6,096 Rotterdam 6,334 Shanghai 5,184 Los Angeles 4,463 Long Beach 4,689 Hamburg Unit: Number x 1000 TEU (Twenty Feet Equivalent *Including Rivertrade in 1999&1998 statstics Source: Port of Rotterdam, 2002 & Korea Container Terminal Authority, 200228 Figure 4-6. Comparison chart of the major Northeast Asian ports 2.5 76 80 ~A IU 70 :::::: '::::::::: : :::: ::: ~22 : i:::::::: 60 40 -: :------: ::::"-:'::::::::::: :::::: ::: -::--:: i::::::::::::::: 30 ::::::::::: :::::: :: :::: :::: ::::::: :: ::::::i::::::: 50 49 :::::: : ::::--:: :: :' :" :::: :::: -:-::--:-:::::::1:::--: ::::::: ::-::::::: i: :::::::::::: :::: :::: ::::::::::::: :::::::::::::: ::::: :: ::::: ::::::: : ::-::: :::::::::::::: iiiiiiiiii iiiiiii-i :: ::: i:::::::::' 20 50 R :----:::: ·i----~----:::-: ::::::: : : --:::·:::I ::-:::::,:::::::·:: -::-:::::: ::::i:::::::::: :::-:-::;: ::::::::::: ::: :::::::::::::' : ::::' :i:-ii-i i::: ::-·:_-:-::i--i : :::: ::: ::::: ;--:: :::: --:---:----:- 2 6 :::-:::::::: -·::::::::: : ::::_ :: ::::: : : ::::::: ..::::::::::: :: :::::::::::: · :: ::::·:::: :::::·::::: ::: : :::::::::: : -:- : -:: ::::: ::::::: :::::: :::. :::i:: :i:::-::_: :: i:: :: :: : :.:.:::::. ::::: :.:.::: ::::::i::-::::::::: .:::: ::: -::-:_--:i-_: ::-__ :::::::::: ;:: ::: ::::: ::: :::::: :::::::::: -:--__-:--_ii:__-:__-- 10 1.5 :::::::::::-:: ::::: ::::::: ::::;: ::: :: ::: :::::: :::: ::::: :::: :::::: :: :i:::-:::::::::::::: ::: :: ::: :::: :::: ::i: :::-i: :''"'"': 3 I 0.5 i ~· - SI' Korea Hong Kong Singapore .n u ........ Taiwan Source from: The Ministry of Construction and Transportation, Korea, 200229 28 http://www.kca.or.kr/ Moreover, as presented Figure 4-6, in the usage fee of the seaports, Hong Kong is twice more expensive than Korea. Assuming that usage of seaports is increased in the future, cost advantage Korea has against Hong Kong will be acted as a favorable factor to lure the sea logistics volume in Northeast Asian Region. In case of China, the Chinese government tries all their effort to expand and enhance basic infrastructure capacities. However, unfortunately, due to the explosiveness of Chinese economic growth and demand increasing has started to show some critical negative signs on the infrastructure facilities - the chronic lack of supply. For example, even though, considering its own capacity, Shanghai has a competitive facilities and infrastructure, the massive trade demand from domestic and foreign firms, Shanghai cannot answer the enormous request of sufficient supply of container handling system. Therefore, Busan plays role of an alternative answer, even though it is restricted in short-term role, of China at present. Table 4-6. The Networked Readiness Index of the Asian Nations, 2002 NRI Rank Country 1 2 3 Finland United States Singapore 9 14 18 20 37 43 Taiwan Korea Hong Kong Japan India China Source: WEF, 200230 29 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom 30 Global Information Technology Report 2002-2003 - Readiness for the Networked World (http://www.weforum.org/site/homepublic.nsf/Content/) As for the IT infrastructures capabilities, Hong Kong and Korea have significant competitive advantage over China, yet. Even though, China tries to catch up with Hong Kong and China, considering the difference of basic technology level and frequency in use, it will take time to be viable status for China. For example (Table 4-6), according to the Networked Readiness Index 31, which is surveyed by WEF, China is ranked at countries in the world, while Korea is 14 th and Hong Kong is 1 8 th, 4 3 rd out of 82 respectively. Moreover, the various indicators or indexes in IT infrastructure such as the availability of mobile Internet access, availability of broadband access (Table 4-7) and public access to the Internet (Table 4-8), China is much behind in Korea and Hong Kong. Table 4- 7 & 8. Availability of Broadband Access / Public access to the Internet Rank Country Value Rank Country Value 1 2 Finland Canada 6.35 5.97 1 2 3 Korea 5.93 3 Iceland Finland Denmark 4 5.83 4 Norway 5 Singapore United States 6.38 6.33 5.97 5.68 5.72 5 Korea 5.52 10 Hong Kong 5.31 9 Netherlands 5.36 P~ 13 Netherlands 5.27 10 United States 5.35 France Taiwan 4.76 4.03 18 22 Hong Kong Taiwan 4.76 26 29 Japan India China 21 39 65 Japan 3.29 67 India 3.17 ~`~""`~~`~`~""~~^"""""I""`~~` 72 China 2.92 used not available / 7=is widely 1= 1= isis not available / 7=is w idely used 69 4.36 4.08 3.96 2.83 1= very limited / 7=pervasive Source: WEF, 200232 31 Relative indicators of a nation's ICT excellence 32 Global Information Technology Report 2002-2003 - Readiness for the Networked World (http://www.weforum.org/site/homepublic.nsf/Content/Global+Competitiveness+Programme%5CReports%5 4.1.3. Supporting Industries and Technologies Before even considering hub strategies and its workable action plan, to lure overseas investors and corporation, a nation must have noticeable strength in a specific industry, which can offer various and plentiful business opportunities in nowadays. Regarding this, Korea has been very strong in IT related industry such as microchips, LCDs and mobile technologies. Korea has also global leader firms in those industry, which can compete in the global competition (i.e., Samsung Electronics in IT industry and Posco in steel manufacturing industry) With the supporting policies of the Korean government on the technology development in the national strategic dimension, basic infrastructures and facilities related with these high technology oriented industries has been expanded and enhanced as well. Table 4-9. World Shipbuilding, 2002 Japan Far East Asia Others Korea 1995 9,311 6,218 1443 16,972 198 3,773 1,209 500 22,652 1996 10,149 7,380 1761 19,290 214 4,294 1,453 586 25,837 1997 9,883 8,229 2220 20,332 154 3,336 1,100 615 25,537 1998 10,272 7,250 1923 19,445 324 3,777 1,200 718 25,464 1999 11,052 9,161 2040 22,253 197 3,516 1,193 663 27,822 2000 12,020 12,228 2250 26,498 102 3,355 1,185 556 31,696 2001 12,024 11,608 2336 25,968 131 3,419 1,205 569 31,292 Year Total North/South America Western Europe Eastern Europe All Other World Total Countries Source: Institute of Shipping Economics and Logistics (ISL), 200233 CGlobal+Information+Technology+Report+2002-2003+-+Readiness+for+the+Networked+ World) 33 http://www.isl.org/library/ Not just with IT industries, Korea also shows strong presence in transportation sectors such as air cargo industry and shipbuilding industry. For example (Table 4-9), Korea has 2 nd largest shipbuilding country in terms of the total selling output in the world just after Japan, the traditional naval powerhouse. In the case of Hong Kong, the circumstance is different. Hong Kong does not have any domestic manufacturing companies in any industries such as Samsung in Korea, Nokia in Finland and Sony in Japan that is well known as global industry reader or even just 'big' companies, solely in terms of the company size, and that seems to be a quite remarkable thing, considering the fact that Hong Kong has accomplished successful IT infrastructure building throughout the country, without any supporting from the domestic industry. Aforementioned, the main reason of that may come from the small demand size of Hong Kong domestic market. That makes Hong Kong economic entities more focus on service sector rather than manufacturing sector. In 1980, manufacturing industry was 25% of GDP in Hong Kong, however in 1997, it fell into the about 7% range and services oriented industry took over 85% of GDP. Hong Kong notifies well that weakness and tries to get out of that situation by boosting IT industry sectors. (Thompson, 2001) Meanwhile, Hong Kong is the 2 nd biggest financial market after Japan in Asia, however the market size of Japan mainly comes from its national economic size and the financial transaction is very restricted in domestic trade, practically. Therefore, It is generally agreed that Hong Kong has the biggest financial market in Asia. The world biggest investment banks such as Goldman Sachs, Morgan Stanley have their Asian regional headquarters in Hong Kong can be another backing evidence for this. Consequently, from the perspective of setting finance center, Hong Kong already has a very strong basis for being financial hub in the region. (Thompson, 2001) As for China, unlike Hong Kong, China has big potential of the industry supporting on the hub strategies, based upon their massive demand domestic market. Even though current technology level of the Chinese industry, especially in IT sector is not very competitive and their industrial focus on the low-technology or skilled oriented products, China can receive enough industrial supports on their hub strategy execution as regard of building basic infrastructure facilities, with high-profiled national labor resource and foreign investments. However, the latent concern seems to be lied in the global competitiveness of the Chinese firms. Almost of all Chinese giant companies are state-owned-enterprise (SOE) types of firms. Therefore, backing with governmental exclusive supports, they could easily dominate the homeland market in a short time with low cost. But, the problem is the fact that government-made favorable situation will soon to be changed according to China entering WTO system. That means the Chinese companies will have to do 'a open competition' with the global leader companies in many industries. Considering the current firm size, technological basis and managerial expertise, that competition seems to be somewhat difficult to the Chinese companies. Therefore, It will be the critical juncture for executing the Chinese hub strategy whether the Chinese industrial leaders will be able to survive in the cruel competition or not. 4.1.4. Geo-Economic Factors A geo-economical attribute is one of the most crucial factors to decide the success of the hub. Especially, if we restricted on the logistics, its importance will surely be increased. In this regard, Korea locates in a good position between China and Japan. Aforementioned, China has a vast market and its economy has grown with incredible speed. Japan has known for the world-best technology in the various industries. Furthermore, even if assuming the peaceful relationship with North Korea, Korean peninsula can be the optimal place linking Eurasia (Europe/Asia) and Pacific region. Currently, the basic scheme of connecting between the Trans-Korean Railroad (TKR), which is linked from the south to the north of the Korean peninsular, and Trans-Siberian Railroad (TSR), which is linked from Moscow to Vladivostok, has been set. If these two railroads were connected successfully and operated with its initial intention, the geoeconomical value of Korea surely will be soared more than now. Because connection between TKR and TSR technically means that a train can run from London via Moscow to Busan (Figure 4-7). Figure 4-7. Geo-Economical Benefit of Korea 34 Source: The library of Univ. of Texas 34 http://www.lib.utexas.edu/maps/middleeastandasia/asia ref 2000.jpg As another example of the Eurasia Ambition of Korea, let's look at the cost and time efficiency of the freight transportation. Using TSR is far much more effective way to transit freight from Busan to Hamburg than using sea transportation in both perspective - time and cost. (Table 4-10) Table 4-10. Eurasia Ambition of Korea Distance (km) Transportation 12360 By Trans-Siberia Railroad Busan - Hamburg (As for 20 Feet Container) By Sea 19187 Days 19 days 28 days Cost($) 1232 1400 Source: The Ministry of Construction and Transportation, Korea 20023s Hong Kong has long been known as the entrepot in the region since 18c and after the Korean War its characteristic has been changed by the cold war situation in the East Asian region. Currently, Hong Kong's geo-economical advantage is mainly as the role of 'launching pad' of China. According to the report 36 from Invest Hong Kong, "90 percent of international firms going to China via Hong Kong have made money, but 90 percent of companies going directly to China have sustained a loss". Additionally, the fact that '40 percent of China's exports go through Hong Kong on their way to global consumers, while 90 percent of Hong Kong's re-exports originate from or are destined for the mainland of China' 37 can be another good example of Hong Kong as the export base of China. 35 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom 36 Data from Investment Hong Kong (www. investhk.gov.hk) 37 Data from Investment Hong Kong (www. investhk.gov.hk) According to the Invest Hong Kong38 , Hong Kong's geo-economical position is described as 'unrivaled location'. Following is a brief excerpt from the Invest Hong Kong website: "Hong Kong has a prime location at the geographical and economic center of Asia. Business executives in Hong Kong have fast and easy access to all the major markets in the Asia Pacific region. We have a world-class airport that operates on a 24-hour basis. Daily non-stop flights are available to major cities in the Asia Pacific, North America, Europe, the Middle East and South Africa. Taking a flight from the Hong Kong International Airport, one can reach most countries in Asia within five hours or less. Located on the southeast coast of Mainland China, Hong Kong has the vast hinterland, which with 1.3 billion people, is going to be the largest single market in the world. Corporate executives can travel back and forth to Beijing, Shanghai and other major Chinese cities in a single day while making their home in Hong Kong. For companies with manufacturing facilities in the Pearl River Delta area, their executives can go there by car within one to three hours." Basically, the selected area for hub strategies in China has a sort of geo-economical advantages. One of the main reasons of the Pudong's unbelievable success as the Chinese economic miracle comes from its fairly good location. With easy access to the sea and air transportation in Pudong makes it attractive to the foreign investors. However, the Chinese government currently faces with the linkage problem among those selected areas. Even though the Chinese government has tried to connect between those 'selected and developed region' and get a synergy effect, due to the uniqueness and exclusiveness of the local characteristic in each region and the physical distance between the regions are obstacles to block the Chinese government's those efforts. Furthermore, because the local governments 38 http://www.investhk.gov.hk/(nov2xb55uo tx4554bjdsp45)/advantages3.aspx?id=42&code=ADVULOC want to get more benefit from the industrial and infrastructure linkage between another adjacent areas, the conflict among them is started to expose. 4.1.5. Socio-Economic Factors There are many factors to represent nation's global competitiveness in socio-economic parts. However, considering the world industry structure has moved toward knowledgebased or oriented industries, the good and abundant human resource is one of most important attributes countries pursue to have, nowadays. Meanwhile, national image is quite much related with the socio-economic development status of the nation and also critical indicators to lure foreign investors. In many cases, national image is not just image. It is surely implicated many important social and even economic indexes to represent a nation's performance. Consequently, national image is a useful tool to gauge the nation's socio-economic maturity. Education Generally, plentiful well-educated and trained labor resource is an advantage that Asian nations have. Traditionally, it is very famous that Asian people have an incredible passion for the education. Therefore, Asian nations have shown high scores in the various educational indicators. As presented Table 4-11, Korea has top positions among those already-high ranked Asian nations in the basic level of educational indicators. For example, according to the survey of Asian Development Bank (ADB), Korea is top ranked in adult literacy rate of year 2000 among Asian nations. Table 4-11. Educational Indicators of Asian Countries Gross Secondary School Enrollment Ratio (%) Nations China, People's Rep. of Hong Kong, China Korea, Rep. of Taiwan Thailand India Indonesia Malaysia Philippines Singapore Latest Year Male Female 58 65 75 79 97 98 98 100 89 87 59 39 77 77 93 103 77 78 128 N/A Adult Literacy Rate (%) 2000 (1999) (2000) (2000) (2000) (1999) (1999) (1998) (1999) (1996) (1999) Female Male 76 89 96 92 94 45 82 83 95 88 92 97 99 99 97 68 92 91 96 96 Source: ADB, Key Indicators 2002 - Education Indicators39 Furthermore, individual ability of Korean students is also remarkable. Korean students at the 4 th and 8 th grades performed significantly better than OECD average. In mathematics, for example, Korean students obtained the highest scores among all participating countries, followed by Japan. The transition from school to work is also relatively smooth in Korea the unemployment rate for young adults (20-24 years) is in the low range among OECD countries. And in tertiary education, although countries like the United States, Australia, and Finland are ahead of Korea with enrolment rates close to 84%, Korea has overtaken in 39 http://www.adb.org/Documents/Books/Key_Indicators/default.asp Japan and the United Kingdom which had higher tertiary education rates in 1970 but have now fallen behind. (IBRD, The World Bank and OECD, 2001) Figure 4-8. Population that has attained at least upper secondary education, By age group 25-34 (2001) ~----~1`~^~^~~~`""1`x^x~~~"~~~~"~"""""~ United States United Kingdom Turkey Switzerland Slovak Republic Portugal Poland Netherlands Mexico Korea Japan Italy Ireland Hungary Germany France Czech Republic Canada Australia OECD countries Mean 88 _68 ~~~~ ::::: :~I--;-:::-: :-'-:--:- . --_-·····:.6..- :::-· ~3· ·30D;iii~ I 32 .- r·-··.ll:°?::r:.:~~. aj---..i ~i.r'K~"ji i-ii-': 92 I52 744 125 _L i I 57 :-::::-:-:----::-::::----i----ri--··:_-:---:I I--: ::::: : : : : :: : : : : : :: : :: : : :::::: 81 : :, ::::::::::::i:::i~:~i ::::::: :: :: : : 85 I,8 92 89 i i s ~s~sa~B~w~R~ i Percentage Source: OECD Education at Glance, 200140 From the global point of views (Figure 4-8), those results of Korea is also far much superior than other OECD countries. Korea is top-ranked in the population that has attained at least upper secondary education among OECD countries. 40 http://www.oecd.org/EN/statistics/ Consequently, Korea seems to have remarkable strength in human resource part, especially comparing with the competitors. However, even though Korea shows super performances, Korea also has a vulnerable point 41 in the educational system to change. OECD pointed that in the special report for Korea like as: " The educational environment should be improved to the level of the OECD countries (i.e., in terms of the class size, public expenditure, and participation of women in science and technology). The government should reduce the financial burden on parents, while maintaining quality and equity in the education system. It should also examine the efficiency and allocation of public and private sector resources." Consequently, the further systemic support from the government is essential to maintain current competitive position of Korea in the education. Table 4-12. Projected Shortfall of Business and Management Professionals with required educational Levels, 1996 and 2001 Educational Level Sub-Degree First - Degr(ee Post gradu ate Total 1996 2001 -1,058 -6,190 -267 -7,515 -816 -8,712 -182 -9,710 Source: Mick C. et al, 2000 41 IBRD/World Bank and OECD, 2001. Korea and the Knowledge-based Economy, pp. 20 Meanwhile, Hong Kong and China is somewhat behind the level of Korea has in this educational factor. In case of Hong Kong, Hong Kong has suffered with the absolute shortage of labor force that has capability, especially in business management and the IT area, nowadays. (Table 4-12) To solve, this chronic problem, Hong Kong government gives incentives to lure high-profile labor force from abroad and also invest much on the related educational institutes. Regarding China, even though China has resourceful manpower in a certain selected area, the basic educational infrastructure is short to its massive demand, yet. Therefore, the Chinese government currently tries to catch up that demand and also set up the basic educational system especially science and technology fields. National Image In case of Korea, especially in the financial market and government sectors, Korea has not received good marks from the world in transparency issues. To make a financial hub and regional business hub for multinational corporations, this lack of credibility on transparent system can be critical problem. Because, without guaranteed high quality financial services, oversea companies will not enter into the Korean market. Therefore, building a clean image of the financial services as fast as possible will be indispensable. Regarding the issues of government sectors, due to the lack of information and misunderstanding about the Korea, Korea has been ranked lower than it really is. Meanwhile, It is also true that there are remaining some parts, which are far below global standards in terms of national transparency or integrity index. For example, following the 2002 Corruption Perceptions Index of the Transparency International. a famous and authoritative international non-governmental organization for devoting to the world transparency (Table 4-13), Korea was ranked at 40. Meanwhile, China was 5 0 th and Hong Kong was ranked 14 th, 2 nd highest rank after Singapore in Asia. Table 4-13. Transparency International Corruption Perceptions Index 2002 Rank Standard Deviation High-low Range 9.7 0.4 8.9- 10.0 Singapore 9.3 0.2 8.9-9.6 Sw eden 9.3 0.2 8.9-9.6 Hong Kong 8.2 0.8 6.6-9.4 USA 7.7 0.8 5.5-8.7 South Korea 4.5 1.3 2.1 -7.1 China 3.5 1 2.0-5.6 Country CPI 2002 Score Finland Surveys Used Source: Transparency International, 200242 In case of China, the situation seems to be worse than Korea. With transparency issue, China also has suffered with the regulation problems. Even though, regulation is changed to deregulation, still the image of China regarding regulation is not favorable looking to the foreign investors. Overseas corporation still feels inconvenience, especially doing business operation. http://www.transparency.org/sourcebook/index.html In fact, according to the China competitive report from World Economy Forum (WEF), "the lack of transparency in legal system and harsh regulation is multinational corporations pick as foremost thing to change in doing business in China". Surveillance on the Internet using and various barrier on economic transaction for foreign entities is notorious example of the Chinese regulation. Figure 4-9. Number of MNCs' Regional Head Quarters (RHQs) in Asia region 30 20 Number of 15 RHQs 10 5 e 0 --- Hong Kong 2 1 `---- China Singapore Countries Korea *Survey sample: Companies that have their Asian head quarters inFortune 100 Source: The Ministry of Transportation and Construction, Korea, 200243 Meanwhile, Hong Kong seems to have a quite upper hand in the part. Before the restitution, Hong Kong has a famous national image of "Free and Clean Economy" and even after restitution; Not only Hong Kong's constitutional documents but also Social, economic and 43 Excerpted from Report: The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom legal systems are still followed by British system. This makes overseas corporations feel comfortable to work in Hong Kong. According to the report of the Heritage Foundation, Hong Kong has been selected as "the world's freest economy" for nine consecutive years (1993-2002) among more than 160 nations. It is just one of good praises for Hong Kong's attractive socio-economic attributes. Furthermore, as represented Figure 4-9, this result is directly related with the fact that Hong Kong has the most regional head quarters of multinational corporations in Asia. Economic Intelligence Unit (EIU) has already expected that "Hong Kong is, and will remain the most important RHG base in Asia Pacific" in the report 2000 44 4.1.6. Political Stability Regional Level Perspective Political stability concern is very crucial to lure foreign investors. The fact that the bankruptcy of South American economy market in 1980's mainly comes from the Exodus of foreign investors, who wanted to shun domestic political instabilities can be good lesson. Especially, in Pacific Asian region, there has seen tremendous and also various political and economic change in the past few years. The characteristics of the political situations are embedded in the investor's reasoning regarding his investment and consumption. When an economic entity makes decisions concerning how much money should be invested, it is scrutinized that the current and future political parameters. In particular, how much political 44 Economist Intelligence Unit's report on a two-year study of over 8,000 multinational firms in the region, 11 December 2000 as well as economic freedom is allowed to the society will be one of critical issues to determine. (Yi Peng, 2000) In the Northeast Asian region, there are more tricky issues regarding political stability. More than any other region in the world, along with the economic system, the security concern is also linked very closed as well in the Northeast Asian region. No one would deny that the United States continues to play the role of hegemonic stabilizer in the region. It is so more because the United States has emerged as the sole military superpower in the post-Cold War era. (Chung-In Moon, et. al, 1999) But there are signs of some significant structural realignments in the region: the relative decline of American economic power, the prospective weakening of its will and capacity to maintain its security commitments in the region, Japan's groping for a new international role in the post-Cold War system, China's phenomenal economic growth and stronger assertion of its status as a regional power, and the prospective Sino-Japanese (between China and Japan) rivalry for regional hegemony. (Chung-In Moon, et. al, 1999) Therefore, the hub strategies of three competitors, which is encompassed and much related with basic national economic policies is indispensably linked to the political soundness or proper power relationship in the region. Country Level Perspective In case of Korea, rather than the concern of inner political system soundness that is somewhat show constancy since 90s, the relationship with North Korea seems to be more critical to judge its political stableness. Because, that link is directly connected with national securities concern, not only restricted just on the Korean hub strategy executions, almost of all Korean economic policies have much depended on the relationship with North Korea. Traditionally, even though there have been some small and local conflicts with them, Korea has tried to build up the sound relationship with North using its overwhelming economic power since 1970s. Therefore, current harsh tension with North Korea about nuclear bombs matter is embarrassing situation and also will affects negatively on the overall performance of Korean hub strategy execution. In general, overseas investors and corporations will avoid or stop to invest in Korea as far as that nervousness is continued. Furthermore, the advantages that Korea has especially in terms of geographical location will be diminished and as a result, the Korean hub strategy will seem to be no longer feasible to foreign investors. As for the China, first, the other concern will be more important. In other words, sustaining ideological bondage for the national political system stability is the commitment of the Chinese government to hold along with pursuing hub strategy and even for the 'Open Policy' in the economic perspective. However, because the lack of social interaction among economic bodies will easily hamper the expansion and improvement of national economy, completed split and keeping stayaway status between economic system and social system is nearly impossible and even not recommended. Until now, the Chinese government has managed this conflict successfully at least without any clear disclosed dispute. However, recently, some chasm is started to reveal in many areas of the society such as wealth redistribution problems that developed countries also are struggling with. Those rifts create another political concern as well not just staying as social issues. In other words, the political ramifications of domestic economic disparity are a serious issue for the central government of China. The problem many create social instabilities and large labor flows across the country. Politically, prevailing regional economic trends, combined with changes in the provincial and central leadership, suggest that the regrouping of political forces is evident in the system. The increasingly rich and quasi-autonomous southeast coastal regions and cities (including Shanghai) are more pro-reform and favor a moderate policy toward Taiwan and Hong Kong. The less developed inland regions that depend on assistance from the central government, while, are more conservative in their ways of reforms and international economic integration because they enjoy only limited benefits from these policy objectives. In order to reduce regional disparity, leaders in Beijing have to balance demands from the coastal and inland regions. (Weixing H. 1999) Furthermore, China entered a WTO system, recently. It means that China will have to open the door of even reluctant parts of the nation or industry and also have to reform the many parts of the economic system to follow and meet the global standard. It may cause conflicts in various way with other countries and naturally, it will be another concern of the Chinese government to deal. Thus, the way of the Chinese government's reaction about those potential rifts will be the key issues to decide sustainable economic development and hub strategy of the China. In case of Hong Kong, the political concern weighs less than other two competitors. Because, since the restitution, under the policy of "2 system, 1 country", Hong Kong government has been soundly separated in terms of operating national schemes and also maintained good relationship with the mainland of China in the way of mutual development, its political system has been stable for a long time. Consequently, considering its political, geological uniqueness and the international relationship, there are no big political concerns to affect Hong Kong's execution of hub strategies. 4.2. Conclusion Based upon studies about competition issues, there are some interesting features in the hub competition. First of all, the strategic perspectives of three nations are slightly different. Hong Kong's hub strategy is currently much focused on the IT hub and they also want to sustain their famous image - prime business center, in the region continuously. Meanwhile, even though Hong Kong also seems to have viable strength in the logistics part, the Hong Kong government currently does not much weigh on that. In case of China, China's current main interest lies on the logistics, which is based upon its massive import and export demands. Moreover, the Chinese government has a strong intension to set a sort of IT business and financial business hub as well in near future. From this point of view, Korea's competitors will be split in two different areas. For the main business center in the Northeast Asian region, Hong Kong will be the main challenger to compete, while China will be a strong counterpart for the logistics hub competition. Therefore, the Korean government must try to find a suitable answer for the question 'How to win this competition?' in two different ways by considering two dissimilar challenges. Meanwhile, regarding strategic perspectives, Korea and Hong Kong depend much on the Chinese factors about their hub demand, especially on logistics volumes and transaction, and strategic direction. Especially, one of the Korea's strategic aims in logistics hub scheme is taking the role of distribution center of China. However, Korea will be fallen into the subordinate position under China, unless Korea also pursues self-generated demands growth for logistics and takes precautions against the poor performance in dealing with Chinese demand. Relating to the relationship between China's explosive growth and the economic performance of Korea, the blazing economic growth of China cab be a double-edged sword for Korea - a driving factor of Northeast Asian economic growth or a backstabbing factor of Korea's own growth. In fact, a 1997 report from Booz, Allen & Hamilton4 5 already expected that the possibility of Korea being "nutcrackered" between China and Japan. This concern seems to have an effect on the Korean government decision about setting hub strategies as well. The Korean government tries to build advanced economic platform in Korea and hopes to survive between two giants by inducing hub plans. However, Korea does not have much and deep consideration of Chinese government's reaction about the distribution center plan of Korea Even though it is assumed that Korea can take a role of distribution center successfully as the Korean government expects, the span of life will be limited by the time that related infrastructure system in China is fully built up. Unfortunately, as previously stated, Korean government does not show any strategic alternatives after that. Consequently, when looking overall strategies of Korea, Korean hub strategic set does not seem to be clear. There are only major and superficial objectives in each sub strategy plan and it is very hard to find any actionable plan, yet. Furthermore, strategically repositioning scheme, which is indispensable in accordance with changing situation, is not contained in the original plan. These shortcomings of the basic scheme should be settled with supplementary explanation and alternative plans. Second, finding much difference or advantages regarding basic infrastructure facilities, which can be a decisive factor of the competition result is hard among competitors. Even 45 An Asian Perspective on Cross-Border: Different Dreams, 1997, Booz, Allen & Hamilton though, Korea and Hong Kong has superior position over China regarding IT infrastructure and system readiness, because the current status of hub competition is in the preparatory phase and the development speed of those technologies is very fast, current gaps are not insurmountable and it will be cut soon as far as China continuously keeps on their development track. Meanwhile, the aspects of the supporting industries and technologies for the hub strategies shows a little bit more difference spectrum than infrastructure system among players. Generally, Korea seems to have a slight advantage on this part. Unlike Singapore and Hong Kong cases, Korea has utilized this industrial power of technology as the leverage to lure foreign firms and investors. In other words, based upon its own high-developed technology foundation, Korea might take an initiative to develop new technological innovation with MNCs, not just satisfying that being status of the manufacturing platform for MNCs. The Korean government hopes that this can boost business center strategy by more inducing foreign MNCs However, the Korean government needs to consider that these technological advantages of Korea is currently concentrated on the some specific field in particular industries and, because those field and industries are almost very brand-new areas, the advantage of Korea can be easily shaded or even broken by the chase of competitors, especially the China. Therefore, for the successful execution of hub strategies, approaching to selective concentration and pursuing integration between the technologies, especially hub strategies related ones, will be necessary to utilize advantages at its maximum. Consequently, current advantage of Korea on physical technological resource, skill set and infrastructure facilities is not clearly dominant level in the competition, which decide the hub race result, yet and its advantage will be eroded soon, unless any channeled action of Koran government is set for the hub strategy regarding those advantage. Third, regarding geo-economical advantages, Korea seems to be closed mostly the original meaning of the hub among three contenders. At least in appearance, Korea is located in the middle of China and Pacific region. Therefore, Korea seems to be able to connect efficiently between these two areas, and even between Japan and European region by land. Meanwhile, in geographical point of view, Chinese cities seems to play just the role of place for the their domestic demands and the fragmented regional character in terms of distance and social and cultural thing among cities will prevent China from true hub integration in the Northeast Asian region. In Hong Kong's case, Hong Kong's role seems to be restricted to the China's launching pad. Korean government tries to use this advantage mainly for the logistics hub plan. However, aforementioned, the success of logistics hub plan is not only dependent on location edge, but also on the demand factor and, unfortunately, it is surely in the hand of China. If China do not want to count Korea on their logistics service area for the their massive domestic demand, there is no way that Korea can reverse that decision in the current situation. Because it is hard to find any clear economic incentives Korea can offer to China. Fourth, in socio economic factors, Korea has slim edge on education field. However, considering the development speed and current plentiful and viable human resource asset of China, the advanced status of Korea will not last longer than the Korean government thought. Meanwhile, Hong Kong also has excellent resource in this field. However, Hong Kong is too small to compete in terms of absolute size of labor force of in this area. Therefore, Hong Kong seems to be behind Korea and China, soon unless there are significant increases in the size of labor force. In national images and other social infrastructure indexes, China is behind on Hong Kong and Korea. For example, the lack of expertise and basic necessities in finance industries prevent China from inducing foreign investors into Chinese market for a while. Furthermore, generally, from the viewpoint of foreign firms and investors, the Chinese social system and government policies are yet to be fitted in the frame of international competition for the hub. Therefore, it will take time China gets enough strength to compete in that field. In case of Korea, even though there have been much progress so far, there are still many things to upgrade for mounting the status of advanced countries. Last, sustaining political stability, especially in the international level, is another key issue Korea should consider for the success of hub strategies, while Hong Kong and China will be less affected than Korea regarding the international level of political stability. Aforementioned, without continuous political constancy in the region, being regional hub in the Northeast Asia is impossible. From that international level, Korean government has already recognized well that the importance of peaceful relationship between North Korea is the critical job and even vital for the success of hub strategies. Meanwhile, even though reunification problem with North Korea is definitely another story to be cautiously unfolded in terms of political and economic perspective, Korean government should focus on proceeding the reunification system step by step as far as afterreunification scenario is already included in the Korean hub strategy basic scheme, especially regarding logistics hub plan in the Northeast Asia. Chapter 5. General Conclusion As global industry structure has transformed from material and energy - driven structure to knowledge and information -driven structure, the global competition to grasp competitive advantage among the nations is more severe than before. In the mean time, 'the hub concept' has introduced and the nations already have advantages on the geographic aspects or the logistics industry get into the hub competition. Some of them are on that critical position in their region or even in the world as the hub. The situation seems to be unfolded in very similar way in the Northeast Asian region. However, on the contrary other region's cases - the Netherlands in Europe and Singapore in Southeast Asia, more harsh and keen competition has been opened among three contenders - Korea, Hong Kong, China in Northeast Asia, so far. The foremost reason of this is the regional economic dynamism. While other regions in the world has slugged in economic performance such as GDP growth, the Northeast Asian region has stayed in healthy for years since after economic crisis shock in late 90s. Moreover, related with that, the Chinese factor - explosive domestic demand, is another attractive feature, making hub competition more intense. Considering internal capabilities, Korea entered the hub competition a little bit later than the challengers did - Hong Kong in early 90s and China in late 90s. (SERI, 2002) In case of Hong Kong, Hong Kong already gets a sound image and even practical advantages of the Northeast regional hub in some sector such as financial industry. Therefore, It is natural that the Korean government feels a kind of time pressure to achieve a visible output in short time. Although Korea seems to be behind on competitors in terms of schedule, very delicate approaches to pull the hub strategy for the Korean government are indispensable. Especially, considering the general characteristic of the national agenda - sound combination among the ministries and between central and regional government, these mega hub strategies need to a quite certain amount of time span to show any visible results of the performance. Therefore, again, the Korean government must move by step-by-step and even resolve to wait for getting fruitful outcomes. Comparing with China and Hong Kong, Korea might have advantages on the basic infrastructure facilities and the ICT technology industry strength. In addition to that, in human resource capacities, Korea has potential to be able to dominate competitors. However, the advantages will be erased soon, unless those strengths are channeled well in the enhancing way of hub strategies such as sound government policy to promote ICT technology, which can be grafted into related industry such as logistics. Meanwhile, Korea lags currently behind Hong Kong in socio-economic factors that might be critical to foreign investors and MNCs. For example, the overseas investors and companies do not give full credit to the political stability of Korea. Current brinkmanship of North Korea regarding their nuclear program against the world has affected in negative ways. As one of Korean government representatives warned: " Our vision can only be 100 realized if there is peace and stability."4 6 In other words, drawing peaceful atmosphere in Korean peninsula is fundamental thing to achieve for the success of Korean hub strategies. It seems to be very unfortunate that Korea encounters on the political hardship at the beginning of the launching hub strategy. From the external perspective, to establish hub in the region, dynamic economic cooperation system, not just an agreement, among nations is essential. Aforementioned, in the Northeast Asian region, there are many historically and politically subtle issues, which needs to be solved, yet. The crash of interests in terms of economic perspectives is also remained among major nations. Those rifts keep the region from integrating and cooperating. Therefore, in the current regional circumstance, it seems to be unsuitable if Korea pushes the hub strategy without any consideration about regional cooperation and other countries' situation. Korea's great hub ambition in the Northeast Asia can be easily backfired even before the initial hub scheme completely settled. As a result of that, Korea's national agenda to be the stage of advanced nations through successful hub strategy execution will be denied and Korea will be struggled to regain its form and also should find another way to survive in the global competition eras. For this reason, the Korean government should consider that the strategic harmony with other nations by pursuing collaborative winning hub program rather than by pursuing peremptory winning solution. In other words, being a cooperative coordinator among the nations rather being a sole leader will be less difficult to capture favorable position ultimately in the hub competition and it also will be more appropriate way in terms of regional collaboration. 46 Excerpted from the Briefing on the Situation of the Korean Peninsula, WEF 2003 101 It is not an easy task to judge that Korean hub strategy will be fitted in the current frame of Northeast Asian hub competition like Korean government hopefully expects and it might be too soon to forecast as well. It is true that there are absolutely many huddles Korea should overcome in the way of winning hub strategy execution such as harsh competitive environment, strategic uncleamess, no dominant attributes or factors and North Korea issues. Meanwhile, considering the history of Korea, Korea has proved its indomitable spirit and indefatigable effort to capture the thing seemed to be impossible - miraculous recovery from Korean War, held 1988 Seoul Olympics successfully and swift escape from the Asian economic crisis. However, this hub competition might be the most difficult test Korea has ever been faced with in terms of competition character that strongly knotted with neighbor nations' reaction and performance. Therefore, it might not be prudent to say that Korea can prove their excellent performance once again as they did in the hub race, at this time - in the primary stage of competition. Consequently, the viability of Korean hub strategy is somewhat doubtful. 102 References 1. Ake. E Andersson, 2001. "Introduction", in Ake E. Andersson and David E. Anderson, ed., Gateways to the Global Economy, Edward Elgar Pub, pp. 5-16 2. Asian Development Bank: http://www.adb.org 3. Bombay Chamber International Trade News. May 2002. Economy Profile: The Netherlands, Vol. IV No. 5, pp. 4 -9 4. Booz, Allen & Hamilton. 1997. An Asian Perspective on Cross-Border: Different Dreams 5. Chung-In Moon and Dae-Won Ko, 1999. "Korea's Perspective on Economic and Security Cooperation in Northeast Asia", in Tsuneo Akaha, ed., Politics and Economics in Northeast Asia: Nationalism and Regionalism in Contention, St. Martin's Press, pp. 177-178 6. Dong-Se Cha and Sang-Woo Nam, 2000. "The Korean Economy in Transition: Legacies and Vision for the 2 1st Century", in Kenneth L. Judd and Young Ki Lee, ed., An Agenda for Economic Reform in Korea, Hoover Institution Press, Stanford University, & Korea Development Institute, Seoul, Korea, pp.10-14 7. Edmund R. Thompson, 2001. "Hong Kong as a Regional Strategic Hub for Manufacturing Multinationals", in Ake E. Andersson and David E. Anderson, ed., Gateways to the Global Economy, Edward Elgar Pub, pp. 169-171 8. European Committee. January 1999. EC Directorate for Economic and Financial Affairs 103 European Economy Supplement A: Report on Structural and Economic Reform in the European Union 9. Europa - The European Union On-Line: http://europa.eu.int/index en.htm 10. Europa, Commission Working Document, 2001. Country Strategy Paper-China, pp.1-3 11. European Council of Applied Sciences and Engineering. 2002. Freight Logistics and Transport Systems in Europe, pp. 15-19 12. Hong Kong Reports, May 2001. Brand Hong Kong: Asia's world city: http://www.brandhk.gov.hk/brandhk/fs-pub.htm 13. Hong Kong Digital 21: http://www.info.gov.hk/digital21 14. Institute of Shipping Economics and Logistics (ISL): http://www.isl.org 15. International Institute for Management Development (IMD). 2002. World Competitiveness Yearbook, 2002, CD-Rom 16. Invest Hong Kong: http://www.investhk.gov.hk 17. Jessie P.H. Poon, 2001. "Reconfiguring Regional Hierarchy through Regional Offices in Singapore", in Ake E.Andersson and David E. Anderson, ed., Gateways to the Global Economy, Edward Elgar Pub, pp. 188-189 18. Junichi Goto and Koichi Hamada, 1997. "EU, NAFTA, and Asian Response: A Perspective from the Calculus of Participation", in Takatoshi Ito and Anne O. Krueger, ed., Regionalism versus Multilateral Trade Arrangements, The University of Chicago Press, pp. 103 19. Kap-Young Jeong and Jongryn Mo, 1999. " Korea's Perspective on Regional Economic Cooperation", in Tsuneo Akaha, ed., Politics and Economics in Northeast Asia: Nationalism and Regionalism in Contention, St. Martin's Press, pp. 164 - 175 20. Korea Container Terminal Authority: http://www.kca.or.kr/ 21. Korea Trade - Investment Promotion Agency. 2002. National Competitiveness Survey Analysis Report. 22. Michael E. Porter, 1998. The Competitive Advantage of Nations, Free Press, pp.72 - 75 23. Mick Carney and Howard Davies, 2000. " From Entrepot to Entrepot via Merchant Manufacturing: Adaptive Mechanisms, Organizational Capabilities and the Structure of the 104 Hong Kong Economy", in Chris Rowley and Robert Fitzgerald, ed., Managed in Hong Kong: Adaptive Systems, Entrepreneurship and Human Resources, Frank Cass & Co. Ltd., pp. 17-29 24. MFTEC (Ministry of Foreign Trade and Economic Cooperation), 2002, People's Republic of China (PRC): http://english.moftec.gov.cn/ 25. NFIA (Netherlands Foreign Investment Agency Information Manual), 2002: http://www.nfia.nl 26. OECDa (Organization for Economic Co-operation and Development). 2002. OECD Economy Outlook No. 71:Ch3. Development in selected Non-Member Economies 27. OECDb (Organization for Economic Co-operation and Development). Sep 2001. Country Report: OECD Economy Surveys - Korea, pp. 36-40 28. OECDC (Organization for Economic Co-operation and Development). Feb 2003. Country Report: OECD Economy Surveys - Korea, pp 24-28 29. OECDd (Organization for Economic Co-operation and Development): http://www.oecd.org 30. Perry, M. 1992. Promoting corporate Control in Singapore, Regional Studies 26. 31. Perry, M., J.P.H. Poon and H. Yeung. 1998. 'Regional offices in Singapore: spatial and strategic influences in the location of corporate control', Review of Urban and Regional Development Studies, 10. 32. Peter Nolan, 2001. China and the Global Economy: National Champion, Industrial Policy and the Big Business Revolution. Palgrave, pp. 210-215 33. Port of Rotterdam: http://www.portmanagement.com 34. Porter, Michael E. 1998. The Competitive Advantage of Nations. Free Press. 35. Pudong New Area: http://pudong.shanghaichina.org 36. RMPM (Rotterdam Municipal Port Management). 2002. Annual Report 2001 37. RMPM (Rotterdam Municipal Port Management). 2002. Port Statistics 2001 pp. 4 38. Rongxing Guo, 1999. How the Chinese Economy Works. St. Martin's Press, Inc., pp.2-9 39. , Sep 2002. Issue Report: Conditions for the successful launch of a Special Economy Zone in Korea, Korean Economic Trends, SERI (Samsung Economy Research Institute), pp. 13-20 105 40. Source OECD: http://www.sourceoecd.org 41. Statistics Netherlands. Oct 2002. The Digital Economy 2002. 42. Statistics Singapore: http://www.singstat.gov.sg 43. Stephen Wing-Kai Chiu, Kong-Chong Ho, Tai-lok Lui. 1997. City-States in the Global Economy: Industrial Restructuring in Hong Kong and Singapore. Westview Press, pp. 75, 79-88, 91-100,102-105 44. Stephen J. Anderson. 1999, "Japan's Views of Northeast Asia Regional Economic Cooperation: Bilateral Priorities and Multilateral Experiments", in Tsuneo Akaha, ed., Politics and Economics in Northeast Asia: Nationalism and Regionalism in Contention, St. Martin's Press, pp. 87-92 45. The Center of Cyber Logistics, Hong Kong: http://www.ccl.cityu.edu.hk/ 46. The Economic Development Board, Singapore: http://www.sedb.com 47. IBRD (The International Bank for Reconstruction and Development) / The World Bank and OECD (the Organization for Economic Co-operation and Development). 2001. Korea and the Knowledge-based Economy: Making the Transition, OECD Publications, pp. 18 24, 58 - 59 48. The Ministry of Trade and Industry, Government of Singapore. 2002. Singapore's Engine of Growth: A Demand-Side Perspective. 49. The Ministry of Trade and Industry, Government of Singapore. 2002. Mapping Singapore's Knowledge-Based Economy. 50. The Ministry of Trade and Industry, Government Singapore: http://www.mti.gov.sg 51. MOCT (The Ministry of Transportation and Construction, Korea). 2002. The Basic Scheme for the Business hub in Northeast Asian region, CD-Rom 52. T.R. Lakshmanan, 2001. "Rotterdam: A Strategic Hub in the Global Trade-Transport Chain", in T.R. Lakshmanan, Uma Subramanian, William P. Anderson, and Frannie A. Leautier, ed., Integration of Transport and Trade Facilitation: Selected Regional Case Studies, The World Bank, pp.132-138 53. Transparency International: http://www.transparency.org 54. University of Texas Library Online: http://www.lib.utexas.edu/maps/ 106 55. Weixing Hu. 1999. "Economic and Security Cooperation in Northeast Asia: A Chinese Perspective", in Tsuneo Akaha, ed., Politics and Economics in Northeast Asia: Nationalism and Regionalism in Contention, St. Martin's Press, pp. 115-120 56. William P. Anderson. 2001. "Transport Integration in the European Union", in T.R. Lakshmanan, Uma Subramanian, William P. Anderson, and Frannie A. Leautier, ed., Integration of Transport and Trade Facilitation: Selected Regional Case Studies, The World Bank, pp. 40 - 48 57. World Economic Forum (WEF): http://www.weforum.org 58. Yi Feng. 2000. "The Pacific Asian Scenario" in Bruce Bueno De Mesquita and Hilton L. Root, ed., Governing for Prosperity, Yale University Press, pp. 172-178 107