Monday, February 16, 2004

Hub of Northeast Fantasyland

When I got to Korea I started to read my paper back to front. Not because I wanted to read Peanuts first, but because there is all sorts of incidentally comedy on the pages. For example, once I bogged on how an impassioned plea to end corruption in all levels of society was followed by review for a BMW car that the newspaper, or reporter, was bribed to write. One gets the idea that the layout is intentionally edited so the average reader will not pick up on this stuff.

Thursday was a similar situation. The first article I read was a report released by some business group expressing doubts about Korea's "Hub of Northeast Asia" plan. I urge you to read the article; one cannot with out smiling as saying "fat chance". The Joongang also dryly observes that the group used undiplomatic capital letters for emphasis.

You may still be fostering the idea that the Hub will become a reality. Let us take the nub of the report that said:

"Korea should be made the Most Open; the Least Taxed; and Financially the Most Deregulated; and the Most Transparent."

The response to this idea was actually spelled out on the page before by President Noh. In a speech, noted by the Joongang:

President Roh Moo-hyun told a business audience yesterday that his administration would put more stress on making it easier to comply with government regulations than to reduce the number of those rules.

Oh well, perhaps Korea can hold another Olympics. That force people to recognize it as a hub right?

Roh spun more fantasyland type yarns at this speech by the way. Roh called an increase in service firms a good way to create jobs. He said:

"If there is any discrimination in regulations or government support to service industries, please point that out. The administration will solve all the problems that prevent investments in the service sector."

As an owner and worker in the "Korean Service Sector" Roh I got a few thoughts to share with you. First, you need to realize the word "service sector job" does not always mean "investment banker". It is possible to have a huge service economy, but you need to realize they call cant be in insurance or software engineering.

More importantly Mr. Roh the problems that service businesses face here are not the problem of the explicit regulations, but the structural weaknesses in the economy, government, and society in general. In my own experience I have the following problems:

1. An expensive and unreliable supply chain (this echoes one of the major reasons companies find it difficult to do business in Korea). Part of the reason for this in my case is inconsistent imports. I recommend if you want to improve services, get off your ass and push that Chilean free trade pact!

2. A horrible real estate market, and real estate services market. Not only is finding a place to do business expensive, and difficult to understand in process, real estate agents are basically useless in helping. This goes not only for purchasers but sellers as well. When we thought of selling our place a long while ago, my wife asked "how much do you think we can get?" I said, "Well, lets ask the real estate agent to tell how much similar places are going for." I received a perplexed look and the oft heard response "They don't do that in Korea." Wonderful!

3. Laws regarding business leases being unclear, and biased in favor of the landlord. Compounding this is the structural weakness of being required to buyout a businesses "premium" or "goodwill" when you move in. For example, I got my place for a 20 million deposit which went to the owner. I also had to pay 40 million to the last business owner for "goodwill" (even though her business was dismal). Now the rub is the building owner can throw me out for things like reconstruction (among other things), but he is only required to give me my deposit. He is not required to give me money for relocation, improvements to the property, or loss of business. You can also guess what happens to that 40 million "goodwill".

4. Inefficient legal recourse for business contracts that go bad. Yes, you can get a judgment, even one to biased toward the Korean defendant. However your damages are limited to a pittance of the actual damages incurred. I ended up in litigation recently; I won, but got a small amount back. I was also unable to recover damages for incidental costs caused by the guilty party, nor estimate-able things such as loss of business or goodwill, and on top of that all there are no punitive damages (even for willful fraud which this case included), so people can do bad things again and again without any penalty.

5. In efficient tax enforcement. Yes we all have heard about Korean audits, and the debilitating effects they have on business operations. However what is not discussed is the fact that the tax service encourages such behavior by not requiring adequate records, nor by giving guidelines on how to be "in compliance". The way sales tax is collected is a joke, and furthermore our landlord is shaking us down because he gave us "Choice", pay him 50K extra or pay 100K in taxes. To be honest I want to turn him in and pay the 100 (doing so though would piss off my wife for "making problems"). However if there were adequate enforcement of minor things like this there would be no problem.

There are five things Mr. Roh. When you fix those, I will have five more for you.



Post a Comment

<< Home