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
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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
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: :::: :::
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: i::::::::
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40
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::::'
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6
:::-::::::::
-·:::::::::
: ::::_
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..:::::::::::
:: ::::::::::::
·
:: ::::·::::
:::::·:::::
::: : ::::::::::
: -:- : -:: :::::
:::::::
::::::
:::.
:::i::
:i:::-::_:
:: i::
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: :.:.:::::.
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:.:.:::
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-::-:_--:i-_:
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::::::::::
;::
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-:--__-:--_ii:__-:__--
10
1.5
:::::::::::-::
:::::
:::::::
::::;:
:::
::
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::::::
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::::
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:i:::-::::::::::::::
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:''"'"':
3
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0.5
i
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-
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
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::::::: :: :: : :
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
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