By Kim Jae-kyoung
Following the 2008 financial crisis triggered by the U.S. subprime mortgage meltdown, there are two major trends dominating the global economy at both the national and corporate levels.
One is that governments and companies are trying to look further into the future to secure new growth engines for business sustainability. The other is that they are stepping up efforts to find untapped markets where they can take advantage of low costs and ample resources, with China’s rising labor costs erasing savings from the past.
Simply put, the central stage of the global economic war has been moving from a “red ocean” to a “blue ocean,” which refers to uncontested market space that holds great opportunities. This means that the world is facing an uphill battle over dwindling energy and other natural resources and eventually the expansion of their economic territories.
In fact, blue ocean, the term coined by W. Chan Kim and Renee Mauborgne, both professors at INSEAD, is gradually diminishing as China has already penetrated into many African and South American markets, which are considered relatively untouched areas.
Minister of Knowledge Economy Choi Joong-kyung is one of Korea’s few bureaucrats identifying this transformation. He is now at the forefront of the nation’s efforts to hunt for blue ocean markets.
Since he took office in January, he has placed “developing new markets” on his top agenda. In May, his ministry established a new team designed to tap new markets where Korean companies can increase their influence.
South Korea is now speeding up its move to get the upper hand in some of the untapped markets such as Africa, the Middle East, Southeast Asia and South America. The government has already selected several countries as targets for strengthening economic ties.
They are Indonesia in Southeast Asia, Iraq and the United Arab Emirates (UAE) in the Middle East, Colombia in South America and possibly Ethiopia in Africa. Choi is seeking to sign package deals with these nations. One of the best examples is the recent deal with Indonesia, known as the Indonesia Grand Package.
When the government signed nine memorandums of understanding (MOUs) with Indonesia in May, he proposed what he called the grand package or a two-track approach, under which the two nations are seeking cooperation with both government and business levels concurrently.
The grand package in his words can raise the possibility of winning bigger deals compared to a one-by-one contract, as the approach can increase negotiating power. In other words, Korea can become deeply involved in a target nation’s long-term development projects in return for providing technology and know-how, which Choi believes will help secure new markets.
“The Indonesia Grand Package is the government’s attempt to join Indonesia’s Master Plan (economic development initiative) as a partner in seven key areas — industry/energy,trade/investment, construction, agriculture/fisheries, defense industry and policy/development finance,” Choi said in an interview with Business Focus held at his office in the Gwacheon Government Complex in Gyeonggi Province.
“Currently, we are planning to launch a taskforce solely in charge of promoting and accelerating the package,” he added.
For Minister Choi , the next target is Colombia. Colombian President Juan Manuel Santos has shown keen interest in the Korea’s development model. The reason the South American country wants to make business ties with Korea despite the fact that it has little to export is that it is taking Korea as a role model for industrial development.
The 55-year-old minister recently met with his counterpart from Colombia in Seoul and discussed bilateral ties on 32 economic cooperation projects. Colombia is a country where 80 percent of its territory has yet to be developed and many of its natural resources remain untouched.
“We are taking Colombia as the next success target following the Indonesia case,” he said. Given that the MOUs with Indonesia came after the presidential summit, it is highly likely that the MOU for the Colombia Grand Package will come in mid September at the latest.
Presidents Lee and Santos will have a summit on Sept. 15. Korea’s economic delegation is scheduled to make a visit to Colombia from Sept. 29 to Oct. 4.
Most recently, Choi, who was formerly ambassador to the Philippines, has added Ethiopia to his “blue ocean” list. During his visit in July to Africa with President Lee to support PyeongChang’s bid for the 2018 Winter Olympics, he found that the African country could be another opportunity for Korea.
“I think that Ethiopia can be another win-win solution for both countries if we help them create a (clothing production or agricultural) Multi-Industry Cluster there by using low labor costs and rich natural resources, such as raw cotton,” he said.
Choi’s ambition to tap the Ethiopian market is in line with the ministry’s new strategy of TTC cooperation, under which Korea offers Technology, Training and Consulting in exchange for the rights to develop new markets.
Earlier in April, the government also inked a deal with Iraq to garner the rights to oil supplies — 250,000 barrels per day. In May, it also sealed a deal with the UAE to secure the right to participate in the production at oil fields there with a minimum of 1 billion barrels in reserves.
The minister’s strong passion for developing new markets may come from his belief that a small, open economy like South Korea should focus on boosting exports and keeping the current account balance in good shape for sustainable growth.
Due to ample liquidity in the market caused by prolonged low rate policies, inflation has been one of the biggest headaches for policymakers. Some argue that the government should let the Korean won appreciate further to curb inflation.
Known as a market interventionist, the former vice finance minister, however, is set against this idea. He believes that artificial adjustment of the exchange rate can cause unwanted outcomes without achieving the intended goal.
“A small, open economy is vulnerable to external shocks. It is not desirable to artificially strengthen the value of the won because it can augment external risks by increasing foreign debts and deteriorating the current account balance,” he said.
“Also, such intervention can expose the local market to currency speculators, while deteriorating small firms’ export profitability,” he added. “If trade accounts worsen due to lower profit margins while foreign debts rise as a result of the intervention, the country can face problems in the external side.”
In the midst of the 2008 crisis, Choi, who spent most of his career at the finance ministry, was criticized heavily for his weak won policy. However, his policy was credited later for helping the country weather the crisis faster with the economy getting back on track.
In the meantime, Choi downplayed concerns over a double-dip downturn of the global economy. “I think chances are slim that the global economy will slip back into a double dipping despite fiscal troubles in the United States and Europe,” he said.
“Effective policy responses by the U.S. and Europe, and international cooperation of the G-20 countries, will be a key to overcoming the ongoing crisis.”
But even if some of the major powers fall into a critical situation, Korea will be able to withstand shocks from outside, he stressed, citing improvement in key indicators measuring external risks, such as foreign reserves, structure of foreign debts, current account balance and national credit ratings.