Seoul-ful – Asia's Latest Miracle
By Michael Schuman / Seoul (with reporting by Lina Yoon / Seoul)
When I relocated from New York City to Seoul, South Korea's capital, in 1996, I found the city vibrant and fascinating, but also surprisingly provincial. Koreans preferred their fermented kimchi over any other food, and though I grew to enjoy the spicy staple, a longing for familiarity and the feebleness of my digestive system occasionally demanded a respite from the chili-laden cabbage. That proved challenging. Aside from some fast-food joints and wallet-straining restaurants at five-star hotels, foreign cuisine was hard to come by. It's why I have such fond memories of Lee Je Chun. While studying and working in Germany, Lee acquired a taste for things European, so in 1992, he opened the Jell, a shop that sold wine, cheese, pasta, sausages and other imported delicacies. The occasional chunk of cheddar I'd buy was a cherished reminder of a home far away.
A few weeks ago, I returned to my old neighborhood in Seoul for the first time in 10 years, and much to my surprise, Lee and the Jell are still there. But it wasn't the same place where I shopped in the 1990s. Lee no longer sells food: foreign goodies can now readily be found at supermarkets and Costco outlets. Instead, Lee has built a private club for wine lovers, where he hosts tastings for members who pay a $900 annual fee. In its earlier form, the Jell catered largely to expatriates; today the wine club's members are nearly all locals. Koreans have caught on to the pleasures of a good wine. "Korea has changed a lot," Lee says. "Koreans are opening their minds."
The results are striking. Thirty years ago, Korea was poorer than Malaysia and Mexico. Since then, its GDP per capita has surged by a factor of 10 to $17,000, more than double the levels in those countries. GDP growth was 0.2% in 2009, when much of the rest of the world was contracting, and is estimated to be 6% this year. Yet when I left Korea in 2000, it was an open question whether its success could continue. The embarrassing memories of the 1997 Asian financial crisis were still fresh, and Koreans were worrying that they would lose out to a rising China.
Over the past decade, however, Korea has reinvented itself — it's an Asian miracle again. Korea has become an innovator, an economy that doesn't just make stuff, but designs and develops products, infuses them with the latest technology, and then brands and markets them worldwide, with style and smarts. Samsung and LG, not the Japanese electronics giants, are dominating the hot new LCD-TV business. In 4G phone technology, Samsung is poised to become a leading force, while Hyundai Motor, an industry joke a decade ago, is a top-five automaker, its rising market share fueled by quality cars and nifty marketing.
"'Made in Korea' used to be synonymous with cheap and imitative," says Bernie Cho, president of DFSB Kollective, a start-up that markets Korean pop music internationally. "Now it's become premium and innovative." New industries, from online games to pop music, have emerged as powerhouses. Politically as well, Korea is stepping out of Washington's shadow and becoming an influential voice in its own right. Symbolic of that new role, Seoul is hosting the G-20 summit on Nov. 11 and 12, the first Asian country to do so. This nation is a global leader-in-waiting.
Part of Korea's success is simple commitment. Koreans spend some 3.5% of their GDP on R&D, compared with 1.5% in China and less than 1% in Malaysia and India. Innovation, however, isn't something that can be conjured up in government offices or corporate boardrooms. You can tell people to work harder or build a more modern factory, but you can't order them to think better or be more creative. That change has to take place inside people's heads. In Korea, it has. Koreans have become more accepting of diversity and outside influences and quicker to shed old prejudices. Such an outlook was brought about by a fundamental (and continuing) reformation of Korean society. Koreans are breaking down the barriers that held the nation back, a process fostered by political freedom and a passionate embrace of the forces of globalization. Says Cho: "Korea has gone from being a hermit kingdom, from a closed door, to open arms."
A Stranger No More
Globalization has always been the engine behind Korea's economic miracle. Beginning in the 1960s, a destitute Korea capitalized on its cheap labor to competitively export toys, shoes and other low-tech goods to consumers in the West. That jump-started income growth; as costs rose, Korea shifted into ships, microchips and other advanced products. Yet to Koreans, globalization was a one-way street. They were happy to sell things to the world, but wanted no more than the profits in return.
Koreans didn't care much for foreign cars, foreign investment — or foreigners. Empty taxis would ignore my frantic hails, while locals sometimes swore at me while I walked in Seoul with my Korean-American girlfriend (now wife). Behind its crenellated walls, the Korean economy developed on its own dynamic, and boosted by their unexpected economic success, Koreans came to believe their system was special, even superior. But dangerous problems were festering. Companies were shielded from competition and heavily supported by tight links to the government and banks, allowing them to borrow and invest willy-nilly while building up frightening debt burdens. When I would mention these flaws to businessmen or officials, I got brushed off. The normal rules of economics didn't apply to Korea.
That self-delusion evaporated during the Asian financial crisis of the late 1990s. As Korea's most prominent companies collapsed into bankruptcy and the government endured a humiliating $58 billion International Monetary Fund bailout, Koreans had to rethink the ways they did business, managed their careers — even their entire economic system. The crisis "was the catalyst" for change, says financier Tom Kang. "The old ways didn't work."
Kang would know. In 1999, George Soros purchased control of a brokerage then called Seoul Securities and plucked Korean-American Kang from Wall Street and inserted him as CEO. Kang created an instant stir. CEOs in Korea were expected to work their way up the seniority-based corporate ladder, and the incumbent managers at Seoul Securities were outraged that a 37-year-old outsider was now their boss. Local media got wind of his Wall Street — level compensation, and he got dubbed "the $3 million man." Kang became a symbol of evil foreigners taking advantage of Korea's moment of weakness.
Kang had entered a securities industry that didn't operate by international standards. Poorly trained brokers would flog stocks to old ladies based on rumor and press clippings. Kang got to work applying what he had learned on Wall Street, cleaning up the firm's risk management and expanding and strengthening new businesses like institutional sales and investment banking. As profits rose at Seoul Securities, other brokerages copied Kang's imported ideas. The industry has changed so much, Kang says today, that if he arrived now as CEO he wouldn't create nearly the same commotion. Koreans "are much more open, have much more global experience," says Kang. "That's the real drama. You can talk about government policies, but [the difference] is the people."
What happened in the securities industry was replicated in other sectors. The 1997 crisis broke apart the cozy government-banking-corporate networks, forcing the big companies to become truly profitable, independent and internationally competitive for the first time. That process was egged on by a new influx of foreign money, ideas and people. Foreign investors began to play a much larger role in the domestic economy, increasing competition. Korean companies brought low by the financial crisis in banking, autos and other industries were sold off to international giants. Storefronts in Seoul now boast more foreign names than I thought possible in the 1990s, from H&M to Kate Spade to Zara. After Apple's sudden success in a Korean economy where foreign handsetmakers had almost no presence — its iPhones claimed more than a quarter of the local smart-phone market in the first half of 2010, according to research firm IDC — Samsung was pressed to accelerate its own product development. The number of foreigners living in Korea has exploded, from fewer than 250,000 in 2000 to more than 870,000 in 2009. Business before the financial crisis "was more like a club," Kang says. Now "there's a lot more competition, and that's forcing people to be innovative. If they don't, they're going to die."
That reality altered Korea Inc.'s view of the world, and made its companies fiercer competitors. Korean corporate offices used to be for Koreans only, but now firms like carmaker Hyundai Motor recognize they have to be more open to outsiders and foreign ideas to compete on a global scale. "When we went to overseas markets, we tried to control everything from headquarters and by Korean staff; most [Korean] companies were doing that," says Han Chang Hwan, a senior vice president who spent much of the past 12 years posted in the U.S., India, Malaysia and Germany. "Ten years ago, the president of Hyundai Motor America was a Mr. Kim or a Mr. Park. We realized it was ridiculous. Nowadays, all the overseas subsidiaries are handled by local staff. It is a process of globalization." That's made Hyundai much more responsive to local markets and creative in its sales efforts. During the worst of the Great Recession in early 2009, for instance, the U.S. operation offered to take back Hyundais from buyers who lost their jobs. The marketing coup was devised entirely by Hyundai's U.S. managers and likely helped the company outperform its rivals during the downturn. Hyundai is even integrating foreign experts into its Seoul management team. Now the headquarters cafeteria offers salads, steaks and other Western dishes at lunchtime. "In the 1990s, we couldn't imagine!" Han exclaims.
Breaking Down Barriers
That same attitude also bolstered the career of my friend Sue Kim. I met Kim only days after my 1996 arrival in Seoul, when she was a young media-relations staffer for the chairman of the LG group of companies. Soon after we met, she told me that she intended to become a top executive at an LG company. That sounded absurd. Female senior managers at big corporations were practically nonexistent. Most women were relegated to minor tasks and expected to quit after they got married. For those bold enough to stay on, Korean corporate culture made it almost impossible for them to get ahead. Unlike her male counterparts, Kim was required to wear a uniform, a practice she found so embarrassing that she changed into business suits whenever she left the office. After work, her male colleagues would often bond at hostess bars called room salons. Kim was left out. But she persevered: she felt she was offered a rare opportunity to show just how valuable women could be to Korean companies. "I felt responsible, that I had to do well," she says. "I wanted to prove myself, that I'm not different from my male peers."
She succeeded. In March this year, Kim, 39, was promoted to bujang, or senior manager, in the investor-relations department of LCD-panel maker LG Display, at a pace somewhat faster than that of many of her male counterparts. The rank is so lofty that many managers never get promoted again, if they even make it up that high. Kim's climb was partly due to her willingness to play the game. To endear herself to her officemates, she would often join them in after-work power-drinking sessions, occasionally downing 10 boilermakers in an evening. But she also believes the old prejudices against women are slowly melting away because of the trials of global competition, which, Kim says, are forcing Korean executives to place merit over gender. "Korean companies look at their employees by what they can bring to the table," Kim explains. "As the global market becomes fierce, the focus has been on maintaining talent rather than the old discrimination."
Other biases are evaporating. When I lived in Seoul, smart, young Koreans had a very narrow path to success: study your brains out in high school, pass the tough exams necessary to get accepted at one of a handful of elite universities, then join the government or a big company like Samsung or Hyundai. Anything else was considered an embarrassment in Korean social circles, and parents usually dissuaded their sons from charting their own course. Not anymore. Koreans have become much more accepting of different life choices. That's encouraged an army of young people to start their own companies, often in innovative IT or high-tech businesses.
Typical of the new breed is Kim Jin Cheon. For eight years, the engineering Ph.D. had a dream job carrying out semiconductor research at Samsung Electronics. But in 2008, Kim, then 36 years old, did what would have been unthinkable in the 1990s: he ditched Samsung and invested $45,000 of his savings in a software firm he named Company 100, to design browsers for mobile phones. Kim says he was inspired by other young entrepreneurs who founded world-beating companies in Seoul, like gaming outfit NCsoft. With more money available to support start-ups, Kim got a $900,000 infusion from a local venture-capital firm in 2009. He says Korea's new spirit of entrepreneurship represents something larger — a longing for more freedom among Korea's youth. "Samsung became a global company, but what did I contribute?" Kim says. "I felt like just one part, not a leader. The younger generation want to do what they really love."
The reason why Kim chose to follow his dream is intimately linked to Korea's political changes. The country was largely ruled by dictators for 26 years, until massive street protests forced free elections in 1987, and even after that, the government still intervened heavily in the economy. But Korea has become a much more democratic society over the past decade, driven by Presidents Kim Dae Jung and Roh Moo Hyun, the first leaders to come from an opposition party, and the market-oriented economic reform made necessary by the 1997 financial crisis. That, says Kim Se Joong, founder of software start-up JellyBus, has emboldened Koreans to take more risks — a crucial ingredient to creating an innovative economy. "When the government was big and had a strict system of control, it was difficult to succeed without the support of the state, so parents pushed their children to reach for stability, by working in Samsung," says Kim. "Now the government is smaller and intervenes less. People feel they can become successful, whatever company they work for. The economy of a country is very reflective of the politics of the country."
Kim Sang Hun takes this thinking one step further. The CEO of NHN, owner of Korea's most popular Internet search engine, Naver.com, says the emergence of new innovative industries like his would have been impossible without Korea's democratization. He remembers the harsh times under the dictators, when police were frequent visitors to college campuses and Koreans were restricted from traveling abroad. "Now the younger generations have become more individualistic and free; they go to Europe on backpacking trips," Kim says. "I think openness is necessary [to have creative industries]. People are not scared to say their thoughts."
Freedom has been an important factor in the career of hip-hop star Tiger JK, who performs as the one-man act Drunken Tiger. The story he told me shows the link between Korea's new openness and its ability to innovate. Back in the 1990s, Korean popular music, or K-pop, was popular only in Korea. Its highly stylized, color-by-numbers dance acts were tightly controlled by the industry, and created all the excitement of a sing-along with Barney. Tiger JK had no interest in playing along. After spending his teenage years in Los Angeles, he returned to Seoul in 1995, hoping to break into the hip-hop scene. But his chatty raps and freewheeling shows were too unusual for Korean music executives. Producers of TV shows promoting new music scolded him for diving into the audience during performances. He even got booed.
Tiger JK peddled recordings of his raps at alternative clubs and built up a following at college campuses with his rebellious shows. About five years ago, other, more famous K-pop stars started seeking him out to praise his music — then adopted some of its elements, like shout-outs to the crowd. TV producers began asking him to dive into the audience. "They were waiting for me to do something wild," he says. Last year, Drunken Tiger won some of the country's most prestigious music awards. Tiger JK says it's because he's become "safe." Actually, it's because Korean society has become as audacious as him. K-pop today is considered the cutting-edge force in Asian popular music. Exports of K-pop nearly doubled in 2009 to over $31 million. "Korean artists became the freedom warriors" for young Asians everywhere, says Tiger JK.
Above all, Korea offers a counterpoint to those political leaders — like China's — who believe "state capitalism" is superior to free enterprise, or that they can create an innovative economy without civil liberties. Of course, that doesn't mean the Korean system is perfect. Despite its progress, Korean society still remains too wary of foreign influence and too biased against women in the workforce. Businessmen complain that too much red tape clogs their way. The outdated education system is so rigid that parents flee the country in droves to put their kids into high schools in the U.S. and elsewhere. The Korean economy is still not a fair place where everyone is governed by the same rules. And North Korea hovers as a relentless threat.
However, the Korea I know is a country that confronts its challenges. I asked my old friend at LG, Sue Kim, what Korea will be like in another 10 years. With more and more Koreans gaining international experience, she believes the great globalization of Korea will continue. South Korea has 75,000 students enrolled at U.S. universities — third highest, behind giants India and China, according to the Institute of International Education. "I think you'll find a much more cosmopolitan Korea," she says. "I think Koreans will bring in more diverse ideas and backgrounds. We're going to extend our presence more globally. We're going to continually grow, and you're going to see a much better country in 10 years." I don't doubt it.