Singapore as Globalization Model for Korea

Singapore as Globalization Model for Korea

During a recent visit to Singapore to deliver a presentation at the International Enterprise Forum 2005, I was struck by the city stateÁøs success in embracing globalization, becoming a living demonstration of what internationalization can accomplish if applied with foresight and realism.

In his address, SingaporeÁøs Senior Minister Goh Chok Tong mentioned some of the benefits of globalization from the city-stateÁøs perspective.

It has enabled Singapore to attract the regional headquarters of many of the worldÁøs top companies. In the process, Singapore has developed a free, open economy, accomplishing an impressive per capita gross domestic product (GDP) of $25,191 in 2004, roughly double that of Korea.

If South Korea is to reach its goal of $20,000 per capita national income within the first decade of the 21st century, it would benefit by emulating some of SingaporeÁøs successful globalization strategies and taking advantage of new opportunities offered by the imminent signing of the Korea-Singapore Free Trade Agreement (FTA).

Looking at ways in which Korea and Singapore can collaborate to reap mutual benefits, the FTA would be a good starting point.

Singapore was AsiaÁøs best economic performer after China last year, with an unexpectedly strong growth rate of 8.4 percent, mainly based on exports of pharmaceuticals and electronics.

All Korean imports will enter Singapore tariff-free after the agreement comes into force while about 75 percent of SingaporeÁøs domestic exports to Korea will be tariff-free.

Korea is SingaporeÁøs ninth-largest trading partner, while Singapore is KoreaÁøs 10th largest trading partner.

Furthermore, as Singapore-based companies have a good track record of working with multinational corporations, they could buttist second-tier Korean companies, or small and medium enterprises, to globalize their operational perspectives.

Though Singapore-based real estate developers and logistics companies are already actively involved in the Korean property market, SingaporeÁøs foreign direct investment (FDI) in Korea in 2001 amounted to $1.5 billion, comprising a mere 2.1 percent of SingaporeÁøs total overseas investments for that year ($71 billion).

Both Korea and Singapore could do more than this. Perhaps a direction for mutually beneficial investment cooperation can be gained from looking at KoreaÁøs FDI trends in 2004.

The overall pattern of KoreaÁøs inbound FDI in 2004 shows two distinctive features: a dramatic increase in the inflow of Japanese investment not seen in years and a huge amount of FDI in electronics, automobiles, shipbuilding and plasma displays, particularly in automotive parts manufacturing and IT-related sectors.

Such a sharp increase in FDI coming into Korea ($12.8 billion), with Japanese investment in particular, is attributable to a number of factors. First of all, Korea ensures profitability for investors.

According to the Japan External Trade Organization (JETRO), 84.2 percent of Japanese-affiliated manufacturers in Korea achieved an operating profit in 2003, while 74.4 percent of the respondents to the JETRO survey in China managed to achieve profits.

The ultimate reason for the superior profitability of companies in the Korean market was clearly that manufacturing in Korea is considerably lower in cost than in Japan and presently higher in productivity and quality than in China.

Much more crucial, however, is that Korea is the fourth-largest producer of information technology (IT) goods in the world as a result of heavy investment in research and development (R&D) in electronics.

The ever-accelerating progress of IT-related technologies and products in Korea has been creating and expanding market opportunities for foreign firms.

One of the main reasons for the huge increase in FDI in 2004 in Korea was foreign firmsÁø attraction to investing in R&D facilities in the IT sector.

There would certainly be ample scope for Singapore to collaborate with Korea in R&D centers in light of SingaporeÁøs expertise in advanced technology.

Equally as important, Korea has emerged as the worldÁøs sixth-largest automobile producer and offers opportunities for the global sourcing of automobile parts.

Although KoreaÁøs manufacturing skills are world-clbutt, Singapore excels in areas where Korean manufacturers are relatively weak, including marketing, brand idenbreasty, global networks and financial expertise.

Collaborating with Korean companies with certain niche technologies would give Singapore companies the opportunity to move up the value chain as opposed to merely growing organically.

Since a recurring theme at the conference was the huge potential offered by India as a market for trade and investment, perhaps there is even more scope for collaboration between Korean and Singaporean firms, given the geographical proximity of Singapore to India and also considering the fact that Singapore has a sizeable ethnic Indian population of its own.

KoreaÁøs current preoccupation with China as a trade and investment partner perhaps needs to be re-examined in light of the rising economic attraction of the burgeoning Indian market.

Dr. Wan-soon Kim is the Investment Ombudsman at KOTRA-Invest KOREA.