As a result of outperformance from the country's
conglomerates, the South Korean economy (
EWY
,
quote
) has performed strongly in spite of turmoil in global financial
markets. As the country's presidential election nears, the
increased focus on struggling small businesses could be bullish for
the long-term prospects of the South Korean economy.
[caption id="attachment_66943" align="alignright" width="300"
caption="The dynamic South Korean economy needs help from its small
businesses"]
[/caption]
Thanks to its fortuitous geographical position --at least
economically-- between China and Japan and its ability to produce
sophisticated goods at a cheaper price than the Japanese, the South
Korean economy has flourished over the past decade. Even during the
most recent economic downturn, South Korea has remained strong
because of world-beating companies.
Firms like Samsung (
SSNLF
,
quote
) and Hyundai (
HYMLF
,
quote
) have risen to global prominence as a result of their attractive
line of products.
These family-owned conglomerates, or
chaebol
, have dominated the landscape of the South Korean economy ever
since it emerged as an economic powerhouse.
While the success of the
chaebol
have bolstered Korean equity markets, certain elements of their
business practices have had a less positive impact on the South
Korean economy. Owing to strong political connections allowing
these firms to engage in what many consider unfair trading
practices, these firms have grown disproportionately powerful.
This has had serious ramifications on the country's small
businesses. Given that the
chaebol
have the prowess to squeeze smaller suppliers thanks to their size
and importance, small businesses in cities like Seoul, Busan,
Gwangju, and Incheon are struggling.
The inability for small businesses to compete poses a structural
problem for the South Korean economy over the long-term. As these
more dynamic firms are unable to stay solvent, new creative
elements of the South Korean economy cannot thrive.
However, this dilemma has gained both media and political
traction in the run up to the country's presidential elections.
Candidates, in particular software developer Ahn Chul-soo has
placed emphasis on the need to foster small business
development
.
Whether meaningful reform is implemented and enforced or if this
is just campaign posturing to appeal to the Korean middle class
remains to be seen; however, if South Korea wishes to maintain its
position as a technologically innovative economy, ensuring the
viability of small businesses is imperative.
