The Wealth of South Korea (Part 1)

Ever since the South Koreans started coming to the Philippines in droves, they have now become the top tourists in the country displacing the Japanese, I've always wondered why they are coming to the Philippines, and Cebu in particular. So when I was invited to attend the 2006 HYUNDAI Asian Dealers Convention in South Korea, I accepted without hesitation. After five days of interacting in the convention, and going around Seoul, Incheon, Jeju and other cities, I think I have found the answer. But first let me tell you about South Korea and HYUNDAI Inc., as it is integral to the answer.

South Korea's population at 49 million in 2005 is 40 percent less than the Philippine population. The size of its economy (GDP) is a little over $ 1 trillion so that their annual per capita GDP is at $20,590. This means that the Korean economy is 9 times bigger than the Philippines, and the per capita GDP is 16 times more. They have the third largest economy in Asia, after Japan and China; and the 10th largest economy in the world.

In the aftermath of the Korean war, South Korea was one of the poorest country in the world, and was totally dependent on U.S. aid for a number of years. It was only in the 1960s, after a series of five year plans that their economy took off, with a boom in trade and investment in 1965 up to the late 1970s, first in the light industries, then into heavy industries. The average annual GDP growth rates in those years was 8.6 percent, and they called these years "The Miracle of Han River". The 1980s to the 1990's, were the push for export years, from shoes and textile goods to automobiles, electronics, ships, steel, then digital monitors, mobile phones, and semiconductors.

The emergence of the Korean conglomerates (Chaebols) had a lot to do with this export push as the Korean government encouraged them to be globally competitive, by providing easy financing and tax incentives. So the Hyundai, Samsung, Daewoo, LG, and sixteen other family owned Chaebols, were dominating the economy. The 1997 Asian economic crisis unraveled the weakness of some of the Chaebols, in its high debt to equity ratios, large foreign borrowings, and the undisciplined financial sector. By 1999, half of the Chaebols were gone and Daewoo collapsed.

The patriotism and the diligence of the Koreans saw them through the crisis years, so that by 2003 up to 2005, their economy was growing again at 4 percent per annum. In 2005, the credit card bubble that threatened the financial system, was counterbalanced by massive exports to China, and reforms in the labor sector and the state pension plan. They are now on the verge of another economic take off starting 2007 taking on the even bigger world. This is why the HYUNDAI story is important as this is the micro version of KOREA INC. Hyundai, is the second largest company in Korea, surpassed only by Samsung. The next largest car and truck company in Korea is Kia, which is already owned by Hyundai, so that six out of every 10 vehicles in Korea is a Hyundai, and three are Kia. The remaining 10 percent shared by all the other car companies and imports. They operate seven manufacturing plants in Korea and 4 other plants located in the U.S.A., China, India, and Turkey. They have 21 assembly plants all over the world and sales offices and distributorships in almost all countries. The manufacturing plants have state of the art technology, with Robots outnumbering people 10 to one in the car body plants. In the Asan plant that we visited, there were 330 robot arms and only 30 people. Even the vehicles moving around the factory were unmanned and were on remote control or moving through sensors. This particular plant produces 1.1million car bodies a year, and can complete one car every 57 seconds. The rest of the bodies are shipped to the assemblers. In 2005 Hyundai sold 2,534,000 cars worldwide worth $27 billion. It is already the 7th largest car company in the world and on its way to be the 5th largest in a few years.