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February 2017

Korea Voices

Bryan Hopkins Jocelyn Clark Hank Morris Rodney J. Johnson

Lee & Ko

The KFTC in 2016 and 2017

First Interviews of 2017 Philippe Shin Matthew Weigand


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In This Month’s Issue Founders’ Message

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KBLA Update Upcoming KBLA Events

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New Members This Month

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KBLA Night Out KBLA Professional Seminar Series: Managing Risk in Korea

KBLA Community Philippe Shin

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Shin & Kim Born in Korea, raised in France, Philippe Shin is uniquely positioned to build bridges between foreign investors and Korea.

Matthew Weigand

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Yonhap News Technology and media are like kimchi and rice: made for each other. You can’t really understand how one works without considering the other.

Korea Intelligence 2017 Forecast

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Trade, Finance, & Industry

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Economics

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Technology

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Risk Management

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Infrastructure/Transportation

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Real Estate

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Legal Analysis

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Asan Institute Retrospect

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In This Month’s Issue

Korea Voices Bryan Hopkins

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2016 – The Year of Unanticipated Risks and Unintended Consequences

Hank Morris

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“What are you doing in my pants?” The Art of Aesthetic Reclusion

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The Korean Presidential Impeachment Process and the Korean Conglomerates

About the KBLA

Jocelyn Clark

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Rodney J. Johnson

When thinking about the future, why are we wrong so often?

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Founders’ Message

2017 is (still) the future. T

he title above may seem like an obvious statement maybe, but it has some non-obvious meanings as well. At its most obvious, it could mean that 2017 isn’t here yet. It could also signify that 2017 will herald some long-awaited advances that will make it clear that some promised future has arrived. Perhaps the meaning we are looking for here is that 2017 won’t be like 2016 - at least not in some key ways that matter. For businesses, for example, maybe it won’t just be a better or faster or more efficient version of 2016, but one that is qualitatively different; one that is revolutionary, almost, where customer expectations aren’t just higher, but totally changed from what they were in 2016. This is the new normal, right? Disruption doesn’t take a decade anymore. It can happen in a year. It can happen in a month. We are, after all, living in a here and now of near constant disruption. The future of communities like the KBLA is not unconnected to the competitve imperatives of changes to the business landscape. Things just can’t be done the way they were in the past. We get that and aim to stay ahead of the curve, aim to lead the trends, not lag behind them. To that end, we are working hard with the whole KBLA community to determine what matters and where we want to go. We’re also working hard to get there first. One of the realities of the future is that data is at the center of everything. There will be rich companies and poor companies, and which is which will not be determined by how much money each has. It will be determined by access to data and the insights good analysis of data provides. There will be good organizational leaders and poor organizational leaders,

and they will be separated not by the strengths of their convictions or strategic intuitions, but by their ability to obtain, analyze, and maximize the usage of good data throughout their organizations. Another new reality is that because the amount of time available for decision-making is shrinking, we can’t expect anyone to operate at the old speeds or schedules. We can’t make the same demands on our customers’ attention, our business partners’ time, or even our employees’ awareness. We know we can’t sit by idle and let these core trends go unheeded. We will innovate. After all, doing things differently than they were done before is our main reason for being. In 2017 You want to time shift. You want to be mobile. You want data and meetings to come to you. You want to consume content however you prefer, when you prefer. You want more data, but more curation. You want guidance and insight. You want more collaboration and more interaction. The KBLA will work hard to give you all of those things in 2017.

Rodney J. Johnson President, Erudite Risk Co-Founder, KBLA

Steve McKinney President, McKinney Consulting Co-Founder, KBLA


Upcoming KBLA Events

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Friday February 10, 2017 JR Pub, Itaewon This event is limited to KBLA Members and specially invited guests only. Register online at kbla. info or send an email to admin@kbla.info.


Upcoming KBLA Events

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New KBLA Members This Month Mr. Sang-Gi Park BNE Consulting CEO

Mr. Jason Kang Illumina Korea CEO

Mr. T.H. Kim P&G, S&D Co. Modern Retail & Distributor Channel Leader

Mr. Steve S. Kim CMS McKenna Nabarro Olswang Attorney/Consultant

Mr. Ted Sangbong Nam Dell EMC Korea Country Channel Director Ms. Hedvig Lunden-Welden Swedish Chamber of Commerce in Korea General Manager Mr. Olivier Calandreau Represntative Director & CEO BNP Paribas Cardif General Insurance Mr. Sean YouSeung Kim Visa, Inc. Director Mr. Nicholas Shin State Bank of India Chief Compliance Officer Mr. Vincent Brillault Air Liquide Global Electronics Materials Managing Director Mr. Joy Noh Henkel Regional Business Manager Mr. ChoongSung Eo IndSolTech Korea CEO

Mr. Eric Funtowicz AccorHotels Director of Sales, Marketing Mr. Inseop Han Stanley Black & Decker, Inc. Country Director Mr. Hag Woo Kim Microsoft Customer Service & Support Director Soo Jin Cushman & Wakefield Ltd. Associate Director Ms. Sung-Young Angela Yum Amgen Country Medical Director Mr. Darren Morrish Grand InterContinental Seoul Parnas & Seoul, Coex General Manager Mr. Rupesh Jain Maersk Korea President Mr. Philip Sung JUNG & LAW Counsel

Ms. Julie Shin Lee&Ko Office Counsel

Mr. Kevin Park Kuehne + Nagel VP, Global Key Account Manager Hi-Tech

Mr. Peter Ho Copower Enterprise Group Limited Group Vice President

Ms. Sarah JY Kim Brandbuilder Inc. CEO

Mr. Jaesung Ju Samsung Electronics Director

Mr. Bob Surh Alix Partners Counsel

Mr. Sam Charlton The Economist Director of Business Development

Mr. TchangYoung Lee ibis Ambassador Seoul Dongdaemun General Manager

Dr. Jisu Kim LG CNS Mr. Hyun Ouk Cho LMVH Korea President Mr. SungYong Cho Top Cloud President & CEO Ms. ChaeYeon Cho Top Cloud Managing Director Mr. James Polina Magnum Korea CEO Mr. SangNam Bae Korea Foreign Company Association General Manager Ms. Geannie Cho Cigna COO Mr. David-Pierre Jalicon French Korean Chamber of Commerce and Industry Chairman Mr. Matt Dowling Moat Asia Group Director of Analytics Mr. Alexix de Pelleport Safran Korea CEO Mr. Andreas Varkevisser Hee Joong, Logistics & Development Marketing & Development Director Mr. Massimo Teglia Ansaldo Energia Country Manager Korea Mr. JayJay Lee Targus Korea/Japan Country Manager Mr. Florian Kohlbacher Economist Corporate Network, North Asia Director

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New KBLA Members This Month

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Mr. DoYoon Kim LB Investment Private Equity Professional Mr. Jerry Ahn GFEZ Executive Director Mr. Alex Sung-Chul Lim Woolim International President / CEO Mr. Pratik Bose CISCO Director, VC & PE Investment, M&A Strategy Ms. Sujin Lim Asiana Airlines Legal Counsel Mr. Andrew Paik Oliver Wyman CEO Mr. Andy Park Mercer CEO Mr. Hank Lee Marsh Korea COO Mr. Frank Steinleitner Star Rent-a-Car Representative Director Ms. Colleen Chapco-Wade CASI Korea Inc. CIO Mr. Landon Miller Seoul Global Center Global Team Manager


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KBLA Community

Philippe Shin

Building a Bridge Between Foreign Investors and Korea Born in Korea, raised in France, Philippe Shin is uniquely positioned to build bridges between foreign investors and Korea. Thanks for talking with us. Please tell us a little about yourself and your background. I was born in Korea some fifty years ago. I’m a lawyer by trade, working for one of the largest law firms in Korea. I like to think of myself as a bridge-builder, someone who helps foreign investors understand Korea and its people and do business here. Very young, I moved to France. I’ve never been to school in Korea. All of my schooling took place in Paris. Ah! I did spend one year in Chicago for my LLM. I guess that makes me a true Frenchman, despite my physical appearance. My parents still live in Paris and they are not thinking of coming back: the Korea they knew no longer exists. When you returned to Korea to work was there a severe reverse culture shock? Yes, clearly. I was living and working among people who looked like me but who clearly did not follow the same codes as me. Thank God my wife is Korean, which helped me accept the trap I had gotten myself into! The first shock was the herd mentality: my colleagues would leave their desks to go to lunch and dinner everyday at the same time, like clockwork, all together. It’s less true these days, since the younger generation values more its individuality. Another shock was the importance of formality, outward appearances, perceptions, packaging. As a

Frenchman, I tend not to put too much emphasis on formality or care too much about what other people think of me. After two years, I was wondering what I was doing here and whether I wasn’t wasting my time in such a backward place. Things have improved since then, and I have matured.

Labor laws are the pet peeve of foreign investors. Foreigners do not expect the Korean Labor Standards Act to be so annoyingly protective of the interests of employees. What do you think are some of the most important things you learned differently growing up in France compared to what you would have learned growing up in Korea? Individualism. Creativity. Defiance of established authority. “Esprit critique,” or the ability to question everything. Freedom of expression. Hierarchy is important, but only to a certain extent. Art de vivre, knowing how to enjoy the finer things in life, especially when it comes to eating and drinking. All of the above is still lacking in Korea, or


KBLA Community

sometimes antithetical with Korean society. Oh well!

Fraternité” is what France is about.

At what age and under what circumstances did you decide you wanted to study and practice law? What about the law attracted you?

How do Koreans and French people think differently about the concept of the law and is there a difference in the relationship between the law and the citizenry in both countries?

After high school, I wanted to study political science, but I wasn’t academic enough for that. Then I switched to law, because I have Korean parents (my brother is a medical doctor, so my parents can be proud of their children). I was seduced by the beauty of IRAC: Issue – Rule – Analysis – Conclusion. It looks simple like that, but it can get pretty complex. And I simply like helping people. “Liberté, Egalité,

On the surface, the two countries follow the same principles. There is a constitution. The law is made by the parliament and is set out in codes. Courts simply interpret and apply the law, but do not make it. But for historic reasons, there are also quite a few differences. In France, the law is the expression of the will of the people. The law prevails over everything except the constitution (and

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KBLA Community now, more and more, European Union regulations). There is a certain respect for the law (maybe not for lawyers, but that is another story). Conversely, in Korea, the law used to be a tool that the ruling class used to impose its will on the People; so violating the law did not necessarily mean you were a bad person. Above the law, the constitution prevails. But there is something above the constitution: the interest of the Korean People. And that means whatever is the flavor of the day. An example that still strikes me: in France or in the US, when a policeman stops you to check your ID, there is always a certain apprehension, if not fear. Not only because he carries a gun, but because he represents the authority of the State. In Korea, when a policeman stops an ajeossi, the ajeossi will argue with the policeman, especially if it’s a younger policeman. There is no respect for the representative of the State. What legal issues do French and other foreign companies coming to Korea run into that are most surprising/unexpected and difficult for them? Labor laws are the pet peeve of foreign investors. Foreigners do not expect the Korean Labor Standards Act to be so annoyingly protective of the interests of employees. But French companies should not be so surprised. 40 years ago, the situation was about the same in France. The power of the labor union at Hyundai Motor is not much different from the power the labor unions used to have at Renault’s factories in the 1970s. Another nice surprise can be the speed of legal proceedings in Korea. A trial court will take less than one year to hand down a judgment in Korea, which is one of the fastest procedures in the OECD, whereas a French trial court will take at least 1.5 years! Appellate procedures are also speedier in Korea.

Do you think there is a difference between the way European and US or UK companies enter Korea? Is there a difference in the way they structure their companies, who they hire to lead them, and how they operate? US companies have the benefit of a large Korean-American community. They can rely on bilingual executives to set up and run their operations in Korea. There are not that many Korean-French or –English or –German executives, so European companies will tend to rely more on expatriates of their own country. Or hire KoreanAmericans. Admittedly, Koreans are more familiar with American culture than with the culture of a particular European country. So they think they are more at ease with Americans than with Europeans. Europe is still, for many Koreans, an unknown. There is quite a fair bit of reporting to the European head office that is involved, which the local Korean staff finds cumbersome. Perhaps it is less so if the headquarters is located in the US. Given that commitment to success in the local market is both crucial to long-term success and agonizingly painful, it would seem signaling commitment is a key indicator of success. In your experience, is there a commitment difference between companies entering from Europe (or specifically France) and the US or UK? Not really. Nowadays, all foreign investors, regardless of their origin, seem to realize the importance of long-term commitment to the Korean market. What advice would you give to the Korean government today to ease the entry of foreign companies and, thereby, attract more foreign investment and greater foreign participation in the Korean economy? The Korean government should discriminate among foreign investors according to their geographical origin.


KBLA Community A fly-by-night trader from China, Pakistan, or Nigeria is not the same as a legitimate small investor from France or Germany. European midsize companies have a lot to offer to the Korean consumers. This means in particular visa requirements should be relaxed for Europeans. Regulations should be more readable. Let me put it another way: bureaucrats should have less discretion in interpreting laws and regulations. The female workforce is under utilized in Korea. The government should encourage women to continue working after giving birth. That means building more day care centers and kindergartens. And make labor laws less employeefriendly! Do you feel Korea is on the upswing in terms of being competitive and attracting foreign investment or that regional competitors are making things tougher? Korea ceased being a low cost country ten years ago. So it must find a way to survive next to the Chinese behemoth which is breathing down its neck in all industrial areas. Think shipbuilding or smartphones, for example. But Koreans are so embroiled in their domestic debates that they seem to ignore what’s going on around them. So, I’m not too optimistic about the future. The paucity of talent in the political class is also a concern. It’s going to get a lot tougher. Anything else you’d like to tell us? In spite of all the negative things I have said above, I love Korea. Working and living in Korea is not hell, contrary to what some young Koreans are saying. There are so many talented people around, and the younger generation is really dynamic and entrepreneurial. Everyday life in Korea is easy, comfortable, even when one does not speak Korean. Korea is never boring. And don’t get me started on the nightlife! Long live the KBLA! Keep up the good work! It’s always good to have an alternative.

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KBLA Community

Matthew Weigand

Working at the Nexus of Technology and News Media Media and technology have a symbiotic relationship that makes them both best friends and the worst of enemies.

T

hanks for doing this interview. Tell us a little about your background and how you came to Korea. My background is a mix of both biology and computer science. I studied biology in college and considered a career in the medical industry by pursuing a graduate degree in that field, but despite my best intentions, I continually distracted myself from studying biology to play with computers. Eventually I decided to give in to my curiosity and got a master’s degree in information technology, instead. I originally came to Korea mostly on a whim. After finishing grad school, I saw a job ad in a magazine and decided it would make for an interesting working vacation before I got serious with my career. Also, Korea appealed to me for family reasons. My grandfather fought on the ground in the Korean War, and my father later served in the Air Force monitoring the DMZ. I was curious to see what all that effort had been for. You have a background in IT but have largely worked in news organizations in Korea. Were you always interested in working in media or was it an accidental relationship?

I didn’t start out intending to work in media. I just answered a job ad to be an editor for an IT-based magazine here in Seoul and gained a lot of experience working in media through that. Having said that, I don’t think I strayed too far, because it is almost impossible to separate a news organization from the information technology used in media creation and distribution these days; in many ways, the two fields are one and the same. All of the Internet is about communicating with other people quickly, reliably, and effectively, and the news industry is about communicating accurate information

News and media have been part of a war for a while now: the war for eyeballs. In a world of plentiful content, the scarce resource is attention. that people need to know. These two industries were made for each other. I like to think my career reflects that match.


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KBLA Community

Where do you see news and media going, globally speaking, now that so much media is consumed on mobile devices and other digital platforms? To war. Ok, that’s a little dramatic. News and media have been part of a war for a while now: the war for eyeballs. In a world of plentiful content, the scarce resource is attention. Just as humans started fighting on land, then moved to sea, then to the air, then space, and finally to cyber space. Media competition probably started with word-of-mouth, then print, then radio and television, then the Internet, and now finally mobile devices. I see news as one of the basic functions of mobile devices. Everybody wants to know instantly about what they’re interested in, and getting accurate information as soon as possible on a mobile device

is key to that. Also, news media organizations want to use their digital platforms to reach as many people as possible, so their end goal is to get their text and video onto as many mobile devices as possible. That sounds great for everyone involved, providing, of course, that the consumers of media value it enough to make it a viable business for producers. Whether you read the latest news on one platform or another is directly related to cold, hard cash, so news organizations are under a lot of pressure to attract the most eyeballs they can, which tempts them to cut down on some traditional safeguards and emphasize sensationalism. While the balance between the two is not new to the media, the decisions must now be made in seconds rather than hours. We can see the upshot of all this in how many mistakes, mistakes that could have


KBLA Community been avoided, would have been avoided, in the past, are now being made by news organizations around the world. News organizations are under more pressure to perform, with performance being more often defined monetarily, and have less time to do it in. This is all very regrettable when we consider how important the media’s role is in democracy and other institutions we hold dear. The new reality of competition may have lasting negative consequences for both the media business and society as a whole. The relationship between news producing organizations and news consumers, is unfortunately, not a two-party conversation. There is usually a third party at the table: the people who pay the bills, the advertisers. Advertisers don’t always have the industry’s or the public’s best interests at heart, so their goals may conflict with those of the other two parties. In the end, advertisers want conversions; they want ROI. Where previously we had advertisers bombard us with messages on tv or in print that we may not have wanted, now we have them deliver their messages with pinpoint accuracy. That’s great for minimizing noise, but not so great for our privacy. There is a power imbalance now that may not have existed before - too many media channels and not enough advertisers. Power has shifted to the advertisers and the ad networks that aggregate digital advertisers, like Google and others. Add on to all this, the latest overlay on the industry - social media, and we have the makings of the most challenging media environment in history. Where the number of news producers and distributors has exploded, social media has effectively forced everyone to distribute through a few tight funnels: Facebook, LinkedIn, Twitter, and their local equivalents. Good material or not, if you can’t get into a newsfeed, you can’t get eyeballs. So, now media companies must

deal with both advertisers and social media companies, who display their own advertising before yours is seen. I sincerely hope news organizations find an alternative solution to their funding problems, although I haven’t been able to find one, myself. What I worry about happening is organized media losing all credibility and people exclusively turning to their friends’ social media feeds for dubious information. Then we will all be lost in a post-news Mad Maxstyle age of misinformation while our communications devices will constantly be trying to sell us things. What has been the impact of social media on the news industry? Do you see it as a net positive or net negative? I see social media itself as a net positive for humanity. Geography had been pulling us apart, and social media is now putting us back together. But I think social media is bad for the news industry for the same reason. All of these systems of media distribution, tv, radio, even print, were put together to help people communicate over vast distances. Now, that’s what the Internet does, and atop it, social media. In the best light, social media can be seen as the answer to geographic disparity; now we are all on one virtual Main Street, shouting our jovial insults to each other with casual abandon. We think we don’t need that old overly stuffy gatekeeper to national discourse, news media, anymore, but in reality, social media is now playing the same role traditional media played: the editorial role. The only difference is that social media is playing it mindlessly, with algorithms driven by profit-oriented goals, rather than social ones. Those algorithms play an editorial role without intending to, but it is editorial nonetheless. This role of social media as a replacement for news media was recently brought to light in December

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KBLA Community of last year when Mark Zuckerberg first tried to deny, and then eventually admitted, that Facebook is a media company. So to answer the original question, I think social media is bad for the news industry in that it is replacing it. I am hopeful that it is a net positive for us, because national and international discourse can, theoretically, be more direct. We’ll just have to wait and see how well the programmers can solve their distribution problems and with how much integrity the large social media companies can operate. What do you see as the biggest issues related to Korean media? Can Korean news media reach out beyond Korea and embrace a larger audience? Would there be any incentive for that? There are three big issues that I see plaguing Korean media. Unfortunately, it exists in a unique ecosystem that often hinders it from doing its presumed job, which is to pass on accurate information. First, a long-standing defamation law makes it possible to hold someone legally liable and even bring criminal charges against them for a true statement if it hurts someone’s reputation. This paralyzes news media in Korea. Furthermore, there is a long-standing tradition in Korean news media of not identifying sources. Spend enough time reading Korea-written news and you will soon begin to recognize the common phrase “said an official source who declined to be identified.” I have personally gotten into arguments about whether or not to publish the names of sources even though they didn’t live in Korea, even though they gave their permission, even though the entire conversation was documented via email. It put my publisher on edge to even consider putting someone’s name next to a quote from them in an article. Third, many Korean people at all levels of organizations both inside

and outside of the media feel an obligation to put Korea in the best light possible when communicating with “outsiders.” That obligation is always in effect when writing in English, since it is not the native language. I have experienced junior members of an organization I was a part of break ranks and try to prevent me, their manager, from publishing a story that paints Korea in a bad light. I’ve also seen a supervisor in a news organization in Korea encourage putting Korea in a good light too strongly, causing discontent among other reporters in the organization. These three factors I think prevent Korean news media, at least those reporting in English, from doing the same quality job as news media organizations outside of Korea do, and therefore from appealing to a larger audience. As stated before, you also have a technology background, so let’s discuss that as well. Are there any media startups in Korea that have caught your eye? Anything interesting in terms of news media innovation that you’ve seen? Well, there is the web site OhmyNews, which experimented with citizen journalism. It has a kind of open source model for journalism, where anyone can write an article. It had a heyday about ten years ago, but failed to expand to Japan or internationally. The Japanese version was heavily criticized and closed within one year of its opening in 2006, while the international version stopped being updated in 2010, because the paid editors were unable to keep up with fact-checking the torrent of articles coming in from all over the world. The most interesting media-related innovation I’ve seen in Seoul is drones flying around. Look up more often. You can see drones flying in perfect lines down the main streets of Seoul or hovering above major intersections. At least, I hope they’re news related. Their cameras are always looking down at us...


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Korea Intelligence | 2017 Forecast

KLI Assessment of Labor in 2016, Forecast for 2017 On December 1, the Korea Labor Institute (KLI), issued its assessment of the Korean labor market in 2016, and its forecast for 2017. KLI anticipates that while there will be job growth in 2017, it will be somewhat smaller than in 2016. Issues with the shipbuilding industry and industrial restructuring will continue to be an issue; the expected average unemployment rate for 2017 (3.9%) will be the highest since the global financial crisis (GFC). Increases in unemployment are expected to be focused on young adults.

Per the report, the total number of workers in society will eventually start to drop, as the “Baby Boomer� generation (born 1955-1963), moves from their mid-50s to their early-60s. Additionally, while the number of employed women in their 30s has increased, the number of employed men in their 30s has dropped; KLI attributes this to a loss in manufacturing jobs. The loss in manufacturing jobs also appears to be impacting men in their 40s.

Data KLI, Table and Translation KBLA


Korea Intelligence | 2017 Forecast

A total of 284,000 new jobs are expected to be added in 2017, down slightly from 296,000 in 2016. According to KLI, if 2H 2017 is strong, annual figures may improve, but employment in 1H 2017 is expected to be similar to 2016. Data KLI, Table and Translation KBLA

Data KLI, Table and Translation KBLA

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Korea Intelligence | 2017 Forecast

KDI Economic Forecast for 2017 On December 7, the Korea Development Institute (KDI) issued its economic forecast for 2017. For the most part, the report appears to anticipate relatively negative developments in 2017. GDP growth for 2017 (annual) is expected to amount to 2.4%, down two percentage points from 2016. Additional details are as follows:

Per the report, economic growth, at least in 2016, was driven largely by government consumption and construction investment; although construction growth will remain somewhat strong, it will be down compared to 2016.

Data KDI, Table and Translation KBLA

Data KDI, Table and Translation KBLA


Korea Intelligence | 2017 Forecast

The value of exports and imports are expected to increase 2.7% and 6.4% respectively in 2017.

Data KDI, Table and Translation KBLA

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Korea Intelligence | 2017 Forecast

Hana Institute of Finance Economic Forecast for 2017 On December 9, the Hana Institute of Finance (HANAIF) released its economic outlook for 2017. GDP growth is anticipated to drop 0.4%p yearon-year, from 2.7 to 2.3 in 2017. The report also anticipates that an increase in several major downside risks (mainly political instability, foreign and domestic), may make it difficult to achieve even two percent growth in 2017.

Data HANAIF, Table and Translation KBLA

Data HANAIF, Table and Translation KBLA


Korea Intelligence | Trade, Finance, & Industry

Average Household Economic Situation in 2016 On December 20, Statistics Korea issued its report on the average household economic situation in 2016. As of March 2016, the top fifth of Korean households (by income) held roughly 44 percent of the country’s total assets. Nearly seventy percent of households held less than 300 million KRW in assets, while 4.5% held more than 1 billion KRW. The overall poverty rate* amounted to 16.0%, although nearly half (48.1%) of those aged 66 and older lived in poverty.

Data Statistics Korea, Chart and Translation KBLA

Women (17.9%) and senior citizens (48.1%) were among the most likely to be impoverished. *A household is considered to be under the poverty line when its disposable income is 50% or less than average disposable income.

Data Statistics Korea, Chart and Translation KBLA

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Korea Voices


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Korea Intelligence | Trade, Finance, & Industry

2016 Foreign Direct Investment Trends On January 3, the Ministry of Trade Industry and Energy (MOTIE) issued its report on foreign direct investment (FDI) received by Korea in 2016. According to MOTIE, pledged FDI reached a record 21.3 billion USD. However, FDI that actually arrived to Korea fell by nearly 41%, which was attributed to a drop in mergers and acquisition investment. The European Union was the largest source of pledged FDI in 2016, with the manufacturing sector seeing the largest year-on-year growth in investment.

2016 saw the second consecutive year in which pledged FDI exceeded 20 billion USD. Pledged green field investment grew by 6.5% in 2016, while pledged M&A investment dropped by 7.8%. Data MOTIE, Chart and Translation KBLA

Pledged FDI in the manufacturing sector grew by 12.4%, while pledged FDI in the service sector grew by 5.3%.

Data MOTIE, Chart and Translation KBLA

2016 was a record year for FDI from the EU, up threefold year-on-year, while that from the US dropped.

Data MOTIE, Chart and Translation KBLA


Korea Intelligence | Trade, Finance, & Industry

Job Vacancies in 2H 2016 On December 28, the Ministry of Employment and Labor (MOEL) issued its report on employment trends, to include job vacancies in 2H 2016. Of the roughly 283,000 unfilled job vacancies in 3Q 2016, over ninety percent were SME positions. The primary difficulties employers encountered were finding qualified applicants (for high skill positions), and a mismatch in compensation expectations (for low skill positions).

Data MOEL, Table and Translation KBLA

In 3Q 2016, the number of job seekers increased 1.4%, while the number of job positions offered increased 0.5% year-on-year; the difference between job positions offered and job seekers increased by seven thousand (8%) year-on-year.

Among job positions left unfilled, high skill positions encountered difficulties in finding qualified personnel, while low skill positions were due to a mismatch in expectations of compensation. Data MOEL, Table and Translation KBLA

There were roughly 283,000 job vacancies as of 3Q 2016; over ninety percent of these unfilled positions were in companies with fewer than 300 employees.

Data MOEL, Table and Translation KBLA

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Korea Intelligence | Trade, Finance, & Industry

Current Household Debt Situation On January 9, the Korea Development Bank (KDB) issued its report, “Current Household Debt Situation and Risk Factors.” According to KDB, concern is mounting over potential risks associated with household debt, which reached 1,300 trillion KRW in November 2016. Increased housing purchases, which were identified as a major reason for the rapid increase in domestic household debt, were attributed to government policies easing real estate transactions, increases in housing rent deposits, and drops in interest rates.

Korea’s household debt-toGDP ration reached 90% in June 2016, while the average debt-to-GDP ratio for G20 nations amounted to 60.5%.

Data Bank of Korea via KDB, Chart and Translation KBLA

Data Bank of Korea via KDB, Chart and Translation KBLA


Korea Intelligence | Economics

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Monetary Policy Direction for 2017 On December 29, the Bank of Korea (BOK) published its report “Monetary Policy Direction for 2017.” Per the report: “The domestic economy is expected to maintain its growth rate in the 2% range. Although the sluggishness of exports is likely to ease along with the modest recovery of the global economy, and facilities investment to shift to an increase, the paces of growth in private consumption and construction investment will slow. With the GDP growth trend falling below its potential level, the GDP gap is forecast to remain negative.”

“The Bank will maintain its accommodative policy stance while also paying attention to financial stability.”

Data BOK

Data Bank of Korea


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Korea Intelligence | Economics

Employment Figures, December 2016 On January 11, Statistics Korea issued its figures on employment in December 2016. According to Statistics Korea, number of employees increased by 289,000 year-on-year. The labor force participation rate increased by 0.2%p to 60.1%; the unemployment rate remained stable at 3.2%. By sector, the number of employees in manufacturing continued to fall, while the number of those in construction increased.

Data Statistics Korea, Table and Translation KBLA


Korea Intelligence | Economics

Export/Import Price Indices December 2016 On January 11, the Bank of Korea (BoK) released the export/import price indices for December 2016. According to BoK, the Export Price Index (won basis) increased 6.3 percent over the last 12 months. The Import Price Index (won basis) increased 9.2 percent over the last 12 months.

Table Bank of Korea

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Korea Intelligence | Technology

KCC Fines Kakao 342 Million KRW for Alleged Violations of Telecommunications Business Act On December 26, the Korea Communications Commission (KCC) announced that it had levied a 342 million KRW penalty surcharge against Kakao for alleged violations of the Telecommunications Business Act. The KCC judgement was related to Kakao’s “Allim Talk” service, and the ability for Daum’s search engine to collect URLs entered into seemingly private Kakao Talk chat windows. Details are as follows:

The KCC based its judgement against Kakao on the following points: - One of Kakao’s services - “Allim Talk” (알림톡, “Allim” being a Korean word for notification), apparently sent “Allim Talk” notifications to users without their consent. According to the KCC, Kakao needs to enable consumers to be able to consent as to whether or not they want to receive such messages. - Kakao also apparently failed to notify users that receiving “Allim Talk” messages could potentially result in charges (presumably from their mobile phone service providers, although the original report does not clarify). According to the KCC, Kakao must take active measures to ensure that users are notified that the reception of said messages may result in additional charges. - Kakao allegedly failed to inform users that URLs (web addresses) typed into chat windows could be searchable by the Daum search engine. The KCC stated that Kakao must take actions to ensure that URLs entered into Kakao chat windows are not searchable by Daum.

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Korea Intelligence | Technology

10 Major Issues Forecast for Finance IT and Security in 2017 On January 5, the Financial Security Institute (FSEC) issued a brief report on what it anticipates will be ten major IT and security issues for the finance industry in 2017. Details are as follows:

Data FSEC, Table and Translation KBLA


Korea Intelligence | Risk Management

Major Changes to Ministry of Food and Drug Safety Regulations in 2017 On December 28, the Ministry of Food and Drug Safety (MFDS) issued a press release detailing several major regulatory changes that will take effect in 2017. A brief explanation of select changes is as follows:

Data MFDS, Table and Translation KBLA

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Korea Intelligence | Risk Management

KFTC Levies 1.3 Trillion KRW Fine Against Qualcomm Incorporated On December 28, the Korea Fair Trade Commission (KFTC) announced that it had decided to issue a corrective order and levy a 1.3 trillion KRW administrative fine against Qualcomm Incorporated, for alleged violations of the Monopoly Regulation and Fair Trade Act (MRFRA). The KFTC alleges that Qualcomm, which holds several Standard Essential Patents (SEP) related to chipsets used in mobile phones, violated Articles 3 and 23 of the MRFRA when it came to licensing said SEPs, by apparently:

- A) either refusing to provide or placing limits on SEP licensing when competing chipset manufacturers requested said licensing, - B) in instances in which negotiations included both the supply of chipsets and SEP licensing, KFTC alleges that the chipset supply issue would be used as leverage to obtain allegedly unfair terms on the licensing issue, - C) providing only comprehensive licenses to mobile phone manufacturers, foregoing what the KFTC judged to be a fair pricing process, with Qualcomm apparently unilaterally imposing what the KFTC regarded as unfair terms on the mobile phone manufacturers.

Data KFTC, Chart and Translation KBLA

Data KFTC, Chart and Translation KBLA


Korea Intelligence | Infrastructure/Transportation

Suseo-Pyeongtaek High-Speed Railway Opens On December 7, the Ministry of Land, Infrastructure, and Transport (MOLIT) announced the December 9 opening of the 61.1 kilometer-long SuseoPyeongtaek High-Speed Railway (SPHSR). The SPHSR, which has three stations (Suseo in Seoul, Dongtan in Hwaseong, and Jije in Pyeongtaek), is almost entirely underground, and will service the new SRT (“Super Rapid Train,� operated by Supreme Railways, a Korail subsidiary). SRT trains will also operate on existing KTX high-speed rail lines throughout the country. The SPHSR will increase the number of high-speed rail trips (to and from Seoul, on weekends), by roughly 43%, from an average of 269 trips, to 384 trips.

New Section of National Route 43 Connects Pyeongtaek with Sejong On November 16, the Ministry of Land, Infrastructure, and Transport (MOLIT) announced the November 19 opening of a 46.5 kilometer stretch of National Route 43, connecting the city of Pyongtaek, in Gyeonggi Province, to Sejong Special Autonomous City, via Cheonan and Asan in South Chungcheong Province. The 1.05 trillion KRW project is expected to cut the duration of the commute between Seoul and Sejong by between 25 and 30 minutes.

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Korea Intelligence |

Real Estate by Cushman & Wakefield


Korea Intelligence |

Real Estate by Cushman & Wakefield

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Korea Intelligence |

Real Estate by Cushman & Wakefield


Korea Intelligence |

Real Estate by Cushman & Wakefield

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Legal Analysis

The KFTC in 2016 and 2017 A

s a politically and historically turbulent 2016 comes to a close, it’s a good time for those interested in the antitrust landscape of Korea to review the activities of the Korea Fair Trade Commission (the “KFTC”) in 2016 and consider what may lie ahead for 2017. As Korea’s ‘antitrust watchdog’, the KFTC enforces Korea’s antitrust laws and sets the policy direction for such law enforcement. The KFTC has two arms: the Secretariat, which investigates alleged violations of the Monopoly Regulation and Fair Trade Act (Korea’s primary antitrust statute, the “MRFTA”) and a committee of 9 commissioners (the “Committee”) that reviews the investigation results submitted by the Secretariat to finally determine whether a violation was committed and the appropriate measures violators must take to rectify the consequences of their impugned acts. In making such final determinations, the Committee holds administrative hearings similar in process to civil and criminal court hearings. Through such process, investigation targets are given the opportunity to object to the KFTC’s investigation results and decisions on sanctions and may subsequently appeal the KFTC’s decisions to the Seoul High Court (an intermediate appellate court). The KFTC’s purview of enforcement activities encompass not only merger reviews and investigations of abuse of market dominance and collusion/cartels, but also the control and regulation of commercial transactions to prevent unfair trade practices that may arise in transactions between parties with a large differential in negotiating power, and in outsourcing (subcontracting) transactions, e-commerce transactions, doorto-door sales and the setting of standard-form contracts or terms and conditions, as well as false or

misleading advertising practices. In 2016, the KFTC was one of the most hotly-reported on government entities due to the major business impact of its enforcement activities. The discussion that follows highlights some of the KFTC’s major merger review and enforcement decisions in 2016 and then provides a tentative forecast of its activities for 2017.

Legal analysis provided by Lee & Ko.

2016 in Review The KFTC is as dynamic as Korea, itself, and 2016 was no exception.

Overall, enforcement of the MRFTA may be more passive in 2017 than 2016. In other words, rather than investigations, we may expect more resources being devoted toward regulation of the chaebol, policy-making and system re-organization. First, looking at systems changes, we saw a strengthening of due process in the KFTC’s investigation procedures. Amendments to the KFTC’s regulations on investigation procedures took effect from February 4, 2016, which largely aim to strengthen investigation targets’ defense rights - e.g. at on-site investigations (dawn-raids), investigating KFTC officers are now required to present investigation targets with the charges made against them in writing, and investigation targets now have the express right to request that their lawyers be present during the


Legal Analysis on-site investigation. Previously, although investigation targets were often permitted to have lawyers present if they requested it, this was not a right but a privilege bestowed by discretion of the investigating officers; it is now an express right stated in investigation procedure regulations, to strengthen investigation targets’ defense rights and prevent investigators from arbitrary exercises of discretion. Having regard to media reports of the KFTC’s investigations of alleged unfair trade practices by Apple Korea in its dealings with mobile telecom companies which reported that the Apple Korea on-site investigation did not go smoothly due to the recent amendments to KFTC investigation procedures, it is clear that KFTC officials are feeling the effects of these amendments. The KFTC was recently bestowed a 5-star “Elite” rating (also bestowed on competition authorities of the US, Germany and France) by the Global Competition Review, a professional antitrust law magazine, and the strengthening of investigation targets’ defense rights certainly contributed to this global recognition and achievement. It is also notable that the KFTC is amending its administrative fine calculation regulations to reduce the discretionary aspects of the fine calculation. If these amendments are put into effect, the factors that go into administrative fine calculation will be more detailed and clear. However, while increases and decreases in the administrative fine (i.e. that resulted from exercise of the KFTC’s discretion) will go down, the overall impact that is anticipated from the reduced discretion in determining administrative fine amounts is that the basic administrative fine amounts should generally go up. The establishment of the KFTC’s new knowledge industry team is no less worthy of mention. According to current media reports, there will be aggressive regulation of unfair trade practice issues arising in nextgeneration growth industries such

as the ICT sector, such as violations of FRAND agreements and abuse of standard essential patent (SEP) rights, ‘pay-for-delay’ settlement agreements in the pharmaceuticals industry, after-market monopolization of patents or designs and internet of things. Finally, another notable trend in KFTC sanctions is that the public prosecutor is showing a more aggressive stance, meaning that there will be more criminal prosecution of antitrust law violations. In the past, the KFTC usually only issued orders for remedial measures and payment of administrative fines, reserving referrals for criminal prosecution to cartels or other egregious antitrust law violations. However, recently, the public prosecutor’s office has established a separate team for antitrust cases, which is aggressively pushing forth with prosecution of individuals (not just companies) and showing more of a propensity toward imprisonment rather than the previously more common criminal fines. Even with cases that the KFTC has not referred for criminal prosecution, there is a growing number of cases where the public prosecutor will request the KFTC to refer senior management individuals for criminal prosecution. Merger Reviews According to the KFTC press releases for the first-half of 2016, there were 63 merger reports filed with respect to mergers involving foreign entities, which is similar to 2015. Approximately 65% of the reports involved mergers between adjacent market participants (i.e. companies engaged in business sectors adjacent to each other’s core business), showing more concentration toward vertical mergers, which strengthens competition within an industry sector. There were 20 reports of mergers between foreign companies with Korean companies, and among the acquisitions of Korean companies by foreigners, 8 were purchasers

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Legal Analysis from the EU, 4 were purchasers from the US and 3 were purchasers from China. The KFTC conducted a 10-month review of the proposed merger between the second and fifth largest semi-conductor manufacturing equipment-makers, LAM Research Corporation and KLA-Tencor Corporation. Determining that the merger would give rise to substantial anti-competitive effects in the semi-conductor manufacturing equipment industry, the KFTC decided to impose remedies involving divestitures of certain of KLA-Tencor’s inspection and metrology tool businesses; ultimately, the parties abandoned their merger plans. Throughout its review process, the KFTC conferred and exchanged information with the Antitrust Division of the US Department of Justice (US DOJ) and China’s Ministry of Commerce (MOFCOM) and surveyed and heard opinions from both domestic and foreign interested third-parties. After a 5-month review of the proposed business swap between global pharmaceutical giants, Boehringer Ingelheim International GmbH and Sanofi SA, of Boehringer Ingelheim’s consumer healthcare business for Sanofi’s animal healthcare business, the KFTC issued remedial orders for divestitures within 6 months of all of Boehringer’s and Sanofi’s animal healthcare businesses having Korean sales of porcine circovirus vaccine and non-steroidal anti-inflammatory oral medication, citing the likelihood of strengthened monopolistic control and related anti-competitive effects on the Korean market. In addition, although not a merger involving a foreign company, the KFTC refused clearance of a proposed acquisition by SK Telecom of CJ HelloVision for merger with its subsidiary, SK Broadband, citing the anti-competitive effects on the pay broadcasting and retail and wholesale telecom markets of such proposed merger.

Abuse of Market Dominance Amendments to the KFTC’s review guidelines on abuse of market dominance took effect on March 23, 2016. The key amendments relax the regulation/control of de facto SEPs and set forth the many criteria to consider in evaluating whether an SEP-holder’s refusal to license is unfair and unreasonable. In this regard, the KFTC conducted numerous hearings in 2016 on the alleged abuse of market dominance by Qualcomm in its SEP-licensing practices and modem chip sales practices vis-a-vis mobile handset makers. The hearing results are expected to come out next year. Cartel Regulation There are two remarkable developments to highlight in the area of cartel regulation for 2016: first, the Supreme Court of Korea decision in the ramen-maker cartel case, which held that evidence of pricing information exchange is not sufficient to prove cartel-like

In presidential election years, the KFTC has a tendency to be more passive toward investigations. collusion in the absence of evidence of an actual agreement to fix prices, has resulted in several over-turnings on appeal of past KFTC findings of cartels, citing insufficient evidence of collusion where such KFTC decisions were based only on evidence of mere pricing information exchange; second, as mentioned previously, there has been a clear and distinct increase in referrals for criminal prosecution of violators in cartel cases. According to statistics for January to August of 2016, the KFTC imposed a total of KRW 590 billion in administrative fines in 37 cartel cases.


Legal Analysis In February of 2016, the KFTC issued remedial orders and imposed an administrative fine of KRW 1.1 billion against Japanese auto-parts manufacturers, Denso Corporation and Mitsubishi Electric Corporation. Denso and Mitsubishi Electric were participants in a global bidding for supply of engine starters conducted by General Motors in 2008. Prior to bidding for the supply contracts, Denso and Mitsubishi Electric agreed with each other on which of the two would win which supply contract (by model); whichever of the two was not supposed to win the bid would offer an inflated price so that the winner would win its bid at a higher price. Also, in March of 2016, the KFTC issued remedial orders and imposed an administrative fine of KRW 59 million against Deutsche Bank and Hong Kong Shanghai Banking Corporation. Deutsche Bank and HSBC were participants in a series of bids for F/X swap contracts conducted by A-company in 2011; for each bid, Deutsche Bank and HSBC would agree on which of the two would win the bid, and whoever was not the winner would submit an inflated price so that the winner would be able to win the bid at a higher price. In October of 2016, the KFTC issued remedial orders and imposed an administrative fine of KRW 11.1 billion against Mitsubishi Heavy Industries and Denso Corporation for conspiring to fix prices on scroll compressors (used for vehicle air conditioners) during a global bid for supply contracts conducted by General Motors in June of 2009; Mitsubishi and Denso agreed ahead of the bid that supply prices for their scroll compressors would be an amount above market value for the first year of supply and also agreed to limited discounts for the following 2 years of supply. The collusion occurred in Japan; the two companies’ employees met multiple times at each other’s offices for a year before the bidding to agree on the supply prices, as well as

discussing with each other on three separate occasions regarding cost estimates both before and after their submission. Unfair Trade Practices and Other Regulation The KFTC drafted an Enforcement Decree to the new Fair Retail Agency Transactions Act (“FRATA”) that came into effect on December 23, 2016, to further define the types and scope of unfair trade practices that may arise in retail agency transactions in violation of the FRATA. The KFTC also issued rules setting forth the detailed standards for calculation of administrative fines. Basically, unilateral acts to control or restrict retail agents’ businesses against their will or without reasonable justification will fall afoul of the FRATA and its Enforcement Decree; there are also provisions that are now expressly required to be covered in retail agency agreements, and administrative fines imposed for violation may amount to up to 80% of the value of relevant products. Moreover, if violations are egregious, orders to pay damages to the injured party (i.e. retail agent) may be as high as 3 times its losses. Accordingly, the FRATA and its Enforcement Decree contain some of the toughest antitrust sanctions currently available to the KFTC. In April of 2016, the KFTC issued remedial orders against Merial Korea for restricting its exclusive Korean agent, Estien Corporation, from selling Merial’s heartworm disease prophylactic, Heartgard, to customers other than veterinary hospitals. Merial Korea’s Korean market share was 18.5% as at 2004, but together with the 2 other largest market participants, its combined market share amounts to 80%, which makes it market dominant (and, therefore, its actions against Estien Corporation an abuse of such market dominance). Also in April of 2016, the KFTC issued remedial orders and imposed an administrative fine of KRW 1.2

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Legal Analysis billion against whiskey supplier, Diageo Korea, for unfair inducement of customers; Diageo Korea paid a total of KRW 14.8 billion in cash as sales incentives to bars that would sell a certain quota of Diageo Korea’s whiskey products instead of those of its competitors.

expect aggressive enforcement policies being implemented against the Korean “chaebol” conglomerates, and since the KFTC also has charge of regulating the chaebol, the KFTC can be expected to devote much of its resources toward such regulation.

In December of 2016, the KFTC issued remedial orders and imposed an administrative fine of KRW 37.3 billion against Audi Volkswagen Korea, Ltd. (“AVK”) for engaging in false and misleading advertisements in violation of the Act on Fair Labelling and Advertisement (the “AFLA”). AVK and its foreign shareholders, Audi AG and Volkswagen AG, were alleged to have manufactured and sold dieselengine cars fitted with defeat devices that activated only under emissions certification test conditions to reduce emissions of NOx to enable the cars to pass emissions certification requirements; the cars did not meet these emissions standards under real driving conditions, but were touted in AVK’s advertising campaigns as being environmentally-friendly, powerful and fuel-efficient engines.

Also, in presidential election years, the KFTC has a tendency to be more passive toward investigations. Accordingly, overall, enforcement of the MRFTA may be more passive in 2017 than 2016. In other words, rather than investigations, we may expect more resources being devoted toward regulation of the chaebol, policy-making and system re-organization.

The KFTC also referred 5 individuals who were formerly or currently in senior management positions within AVK, Audi and Volkswagen for criminal prosecution, which was unprecedented in past sanctioning under the AFLA. Finally, the KFTC reviewed and ordered amendments of delivery and assembly terms and conditions of IKEA Korea that refused refunds of its products and various terms and conditions in outsourcing agreements of Apple Korea with its authorized after-service and care providers. 2017 Forecast Many forecast difficulties for Korea’s economy in 2017. There is an upcoming presidential election and many believe that the opposition party will seize power in the latter half of 2017. In such case, we can

However, aggressive enforcement of the FRATA may nonetheless be anticipated due to the public support for such new law; also, since the KFTC has established a new IP team, aggressive enforcement against abuse of patent rights in the IT, pharmaceutical and other new growth industry sectors can be anticipated. Finally, no real change in direction is anticipated in 2017 for cartel investigations, which are more complaint-driven, and merger reviews, which are generally more immune to public opinion and political environment.

Jung Won Park Partner Jung Won PARK is a partner at Lee & Ko. He served in various posts at the Korea Fair Trade Commission for over 12 years. During his service, he had hands-on experience in investigations of major cases and in each stage of application and amendment of laws including the affairs relating to cartel, unfair assistance and unfair trade acts, and has represented numerous global companies before the Korea Fair Trade Commission.


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Asan Institute Retrospect

South Korea 2017 : Managing Uncertainties and Challenges South Korea begins the new year amidst much uncertainty following the US election and President Park’s impeachment. Kim Jong-un has announced his intent to complete North Korea’s nuclear weapons development while China deployed six bombers and several fighter jets into the southern part of the Korea Air Defense Identification Zone. Historical tension has also resurfaced as South Korean NGOs installed a new comfort women statue in front of the Japanese Consulate in Pusan. Meanwhile, embattled Vice Chairman of the Samsung Group, Lee Jae-yong, was called in for questioning regarding his involvement in alleged bribery of the Park administration. Meanwhile, the economy is facing serious challenges with dismal growth and bankruptcies in the shipping, shipbuilding, petrochemicals, steel, and construction. Who will fill the void in the executive branch to address these challenges? We examine each of these issues below. Dealing with North Korea Kim Jong-un’s annual New Year’s address stressed North Korea’s resolve to complete its nuclear weapons development. The South Korean Ministry of Defense (MOD) announced that it is paying close attention to the North’s activities. Furthermore, the MOD announced that if North Korea conducts an ICBM test, they are likely to use a mobile launcher. The MOD also released the 2016 Defense White Papers, which concluded that North Korea possesses 50kg of plutonium -- enough to create 10 nuclear warheads.

Dealing with China On Jan 9, 10 Chinese aircraft, including 6 H-6 bombers capable of carrying nuclear warheads, entered the Korea Air Defense Identification Zone (KADIZ) near Ieo Island, located south of Jeju. Chinese aircraft have entered KADIZ in the past but this is the first time in a while that a group of aircraft have done so in such a provocative manner. In response, the Korean Air Force immediately dispatched 10 F-15Ks and KF-16s while maintaining emergency contact with the Chinese counterparts. Korea-Japan Relationship Tension is brewing over the comfort women issue as South Korean activists decided to install a statue of peace in front of the Japanese Consulate in Busan. On Jan 9, Japan’s ambassador and consulgeneral in Busan were ordered to return home as an expression of opposition. In addition, Tokyo unilaterally halted the ongoing bilateral currency swap negotiation and postponed all executive level economic meeting. With the bilateral relationship worsening, the 2015 agreement on comfort women has been elevated as an election year issue. Prominent candidates are

Authors J. James Kim John J. Lee, Han Minjeong


Asan Institute Retrospect suggesting to repeal, renegotiate, and/or review the agreement. Foreign Affairs Minister Yoon Byungse stated on Jan 13, that “the government is not against the statue, but called for collective wisdom on decisions regarding its location.” The problem is complicated by the fact that the government has no jurisdiction over this matter. Samsung and Corruption Samsung Electronics Vice Chairman Lee Jae-yong was questioned by the special investigation unit led by Special Prosecutor (SP) Park Young-soo. The SP is trying to show that Lee orchestrated the payment to Choi Soon-sil’s foundation and daughter in exchange for the National Pension Service’s vote to approve the merger between Cheil Industries and Samsung SDI. If Lee is convicted of having committed perjury and bribery, President Park will be one step closer to impeachment. If Lee is also shown to have used corporate funds to support Choi, he may also be indicted for malpractice or embezzlement. Expedited and Market Friendly Restructuring In the official plan for 2017, the Financial Services Commission (FSC) Chairman Yim Jong-yong highlighted the importance of expedited and market friendly restructuring. Accordingly, the FSC is introducing “the pre-packaged plan,” which mixes the benefits of court receivership and workout thereby allowing the court to restructure the company’s debt while creditors are permitted to provide financial assistance to firm she court receivership makes debt restructuring much faster than workout but freezes the firm’s debts and assets, prohibiting creditors from making additional loans. The court and FSC met on Jan 6 to discuss the details of the new system.

2017 Presidential Election in South Korea The presidential election in South Korea may as well be under way with a number of candidates having announced their candidacy for the Blue House. According to Gallup Korea, Moon [Jae In] is the clear front runner for the moment. However, there are a number of factors that could alter this projection, one of which is Ban’s party affiliation. According to a recent public opinion survey, 25.8% of Koreans stated that Ban should not affiliate himself with any of the existing parties while 16% said he should run as a candidate for the NRCP. 10.5% answered that Ban should run under the NFP ticket while 6.3% suggested that he should line up under the PP. Another important factor is the possibility of the voting age limit being lowered from 19 to 18. The TDP, NRCP, PP, and the Justice Party have all shown support while the NFP has been hesitant. Given the number of high school seniors that participated in the recent candlelight vigils, lowering the age limit could impact the overall turnout and election result.

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Korea Voices

2016 - The Year of Unanticipated Risks and Unintended Consequences As the winds of 2016 wind down, companies in Korea need to take a step back and reflect on the major events that have shaped 2016 and will shape the years to come. The major events such as (i) Samsung Galaxy Note 7, (ii) Park Geun-hye impeachment, (iii) Brexit, (iv) KFTC‘s aggressive behavior, (v) Donald Trump, (vi) the implementation of the Kim Young Ran Act, and (vii) Volkswagen, will have a major impact on Korean business and society as a whole for many years. For the most part, these events could not have been anticipated or accurately forecasted a year ago. They were either unanticipated or were the result of unintended consequences. All of the events listed above will impact companies doing business in one form or another and in-house counsel and corporate risk managers must be on guard for potential risks caused by these unlikely events.

conclusive with regards to the root cause.

Samsung Galaxy Note 7 The Samsung Galaxy Note 7 debacle has for the most part, far reaching economic consequences for Korean industry. Samsung Electronics, the largest company in Korea, which depends a great deal on sales of its high end cell phones, suffered a massive PR nightmare as its new cell phone - the Galaxy Note 7 was found to have serious battery issues resulting in personal as well as property damage due to explosions and fire. Not only did the CPSC in the US ban the sale of the Galaxy Note 7 but major airlines refused to allow Galaxy 7s on board. Samsung originally thought it was due to a defective battery but after the battery was replaced by other batteries the fires still continued. This points to a problem that perhaps is not related to defective batteries but perhaps to a faulty design. However, nothing is

Park Geun-hye The meltdown of Park Geunhye’s administration and resulting impeachment could not have been foreseen by most people. Korea’s President, Park Geun–Hye - though rather unpopular, looked like she had smooth sailing until the end of her term in 2017. Then the scandal broke when it was revealed Choi Soon-sil, the daughter of the founder of an obscure sect called the Church of Life, and friend of Park, had manipulated or controlled Park for monetary gain. In fact, Choi allegedly used her relationship with Park to coerce the Chaebols to donate upwards of $70 Million USD to two nonprofit foundations run by Choi. How did this scandal really evolve? Why did Choi become so powerful?

The major question that confronts Samsung as well as Korean industry is why was a defective design not found but allowed to proceed during the design and testing phase? Why wasn’t the design flaw discovered? It appears that in order to gain market share, Samsung management may not have closely monitored the design process but in its rush to beat Apple, it may have rushed the development and manufacture of the product. If so, this points to a major Chaebol problem - hubris or arrogance. Hubris from Korea’s largest chaebol is something that was not probably intended. But after decades of government support, Korea’s chaebols are definitely viewing themselves as somewhat protected and perhaps shielded from society.

Korea has a history of producing cults and sects - take Mooneyism

Bryan Hopkins Special Counsel, Lee & Ko bryan.hopkins@leeko.com


Korea Voices for example. After Park’s father was assassinated, it was Choi’s father that helped Park Geun-hye. Corruption has been commonplace in Korean politics for many years-this is another example. Though people thought Park would be an effective president when she was elected, her past should have been an indication. The generation she is from is known for such corruption. Volkswagen The Volkswagen (VW) scandal has certainly affected the automotive industry in Korea. The importation of German cars into Korea, which once was a flood, has now turned into a trickle. Korea has fined VW Korea and its affiliate Audi Korea 37.3 Billion Won or approx. USD $32.7 Million for fabricating emissions results. Five current or former VW execs are now being investigated by the Prosecutor’s Office for crimes. What happened? Upon investigation by the KFTC it was found that VW had advertised it met pollution standards during qualification tests. It was found however, that VW had manipulated the rest results by manipulating the vehicle’s emission reduction system. It is unknown whether the VW executives knew about the manipulation - however the result was catastrophic for VW around the world. Kim Young Ran The Kim Young Ran Act is Korea’s latest attempt at anti-bribery legislation. The Kim Young Ran Act (the Act on the Prevention of Improper Solicitation and Receipt of Money and Goods) recently went into effect, and promises to not only penalize various acts of public corruption but also extends the reach of the anti-bribery laws into certain areas of the private sector. In strengthening various provisions of Korea’s current anti-bribery and corruption laws and regulations, the Kim Young Ran Act (the Act) focused on 4 areas: (I) the expansion of the acts that may be punished; (2) the expansion of the definition of

“public official”; (3) the prohibition of improper solicitation without the payment of money; and (4) the introduction of liability provisions to ensure corporate accountability. Now, domestic companies must also be concerned not only about potential FCPA issues but violations of the Act and the risk of reputational damage. The problem is the unintended consequence - basically changing Korean society on how it does business. The offering of gifts will be greatly affected, causing not only domestic industries such as restaurants and gift or promotion related companies to greatly suffer, but also the extensive use of personal relationships will also be diminished and that will have its own consequences. Brexit and Donald Trump Korea has been caught off guard by Brexit as well as the election of Donald Trump. As an export driven economy, Korea exports many products, goods and services to the US as well as the EU (and UK too) and greatly depends on the stability of its relationships with the US and EU. In fact it has major trade agreements with the US and EU. However, after Brexit and the election of Donald Trump, who has indicated he is not in favor of free trade agreements as they stand, Korea now faces potential trade issues that it did not think would exist by the end of 2016. Trade issues because of Brexit as well as President Trump revisiting the KORUS FTA was definitely unanticipated by the Korean Government, and is now something that Korean industry will have to deal with. The KFTC In 2016, the KFTC proved to be quite aggressive. Not only has it increased its cartel enforcement but it also is getting ready to implement the new Fair Distributor Transactions Act (FDTA) which will have major consequences regarding

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Korea Voices the enforcement of distribution agreements in Korea between small distributors and large or multinational suppliers and manufacturers. The FDTA, upon review can be seen as very harsh as it applies to suppliers or manufacturers that are in violation under the FDTA. Among the penalties that can be levied by the KFTC are (i) Damages - the FDTA provides that any person incurring loss or damage due to forced purchases or economic disadvantage may recover treble damages; (ii) Administrative Penaltythe FDTA provides that depending on the specific violation, administrative penalties up to the amount of 80% of the transaction amount in question may be levied; and (iii) Criminal Sanctions - though the supplier’s conduct may be ambiguous , the KFTC may still refer the matter to the Prosecutor’s Office. Under the FDTA, individuals may receive prison sentences of up to 2 yrs. and pay a fine of 150 Million KRW. Companies are also subject to criminal penalties. As with most legislation or administrative guidelines enforced by the KFTC, there is room for abuse or misinterpretation. The potential impact of the FDTA cannot be underestimated as it is not only very onerous, it will have a major impact on the Korean economy as many multinationals decide not to pursue distribution agreements in Korea, thereby negatively effecting the distribution channels in Korea. I expect many multinational companies as well as Chaebols will review their distribution agreements in light of the FDTA. Conclusion For in house counsel or risk managers in Korea or in companies doing business in Korea, this year is definitely one of unanticipated or unintended consequences. Black swan events seem more likely than not. It is therefore advisable for everyone to take a good look at their company’s current compliance program and risk management processes as what was once thought impossible is now possible

or what was once thought probable may be now improbable. I suggest that everyone start thinking about managing risk considering the above mentioned events. What steps can be taken in 2017 to improve risk identification or risk mitigation when considering the election of Donald Trump or the Park Geun-hye matter? What about the Samsung Galaxy Note 7 catastrophe? In essence, how can you improve your risk management processes in 2017? How can you do a better job? Maybe the questions you should ask would include: “What are the major risks in my department that could or would generate legal liability in 2017 or have a negative impact on my company’s brand?” And of course - “How can I manage the risks? “ Once you answer the question above, think about how these risks are identified? Maybe you can increase risk identification through the use of risk assessment tools such as employee interviews, focus groups, industry literature, surveys, document reviews, etc. It is important to understand that the key however is to ask the right questions. A risk that will or might negatively impact a company’s brand is a risk that must be minimized or controlled. But the risks don’t always become evident unless the right questions are asked and the right risk management tools are used. Managing risk is an ongoing and evolving process. An organization is never completely protected from risk and new risks are always surfacing. It is the risk manager’s job to manage the process and to help identify the risks a company faces. It is the in-house counsel’s job to manage legal risks that the company faces. Managing risk may involve asking tough questions. It always involves an on-going process that must be implemented wisely. And for those companies doing business in Korea, managing risk has just become more complicated as we look back upon 2016 as the year of unintended consequences.


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“What are you doing in my pants?” The Art of Aesthetic Reclusion I’ve always had a thing for the Seven Sages of the Bamboo Grove (竹林七 賢 죽린칠현) and Chinese hermits in general—those who give it all up for the mountains and only sometimes return. Korean songs are filled with allusions to their uprightness and incorruptibility—the two famous recluses XU You 許由 and CHAO Fu 巢父, who stayed away from politics, hiding themselves on Mount Ji; the Four Graybeards of Mount Shang 商山四皓, who after the collapse of the Qin (221-206 BC), returned to the Han Court (206 BC-220 AD) from the mountain to prevent nepotism of the concubine sort; the Seven Sages, who ran away from the Jin court (265-420) to Shanyang; JIANG Ziya, who abandoned the Shang (16th11th century BC) capital and went fishing with a dry line and straight pin suspended above the water . . . Any student of Chinese history knows the formula: each short totalitarian dynasty followed by a prosperous one; the last ruler of any dynasty is evil, while the first of the next is good; the first king or emperor of an era is named King Military (Wu 무 武) and the king after the war’s end charged with dusting the petals of its civilization is called King Civil (Wen 문 文). And round it goes. The last ruler of the slave-holding Shang dynasty, King Zhou of Shang, fits snugly into this cycle. Remembered as a tyrant who spent his days in debauchery with his favorite concubine Daji, usually portrayed as a malevolent fox spirit in the literature of subsequent dynasties—a warning to any ruler who might have, shall we say, an excess of qi (氣 기), or “vital energy.” For example, in the Ming Dynasty (1368-1644) novel The Apotheosis of

Heroes (封神演義 봉신방), King Zhou is said to have met Daji after making frequent visits to the temple of the goddess Nüwa (女媧 여와) (best known for creating mankind and repairing the pillar of Heaven), whose statue, according to The Apotheosis, got his qi flowing. Nüwa, however, was not a goddess to mess with. At a time, according to the Huainanzi (transcribed sometime around 139 BC), when fires blazed out of control and could not be extinguished; water flooded in great expanses and would not recede; ferocious animals ate blameless people; predatory birds snatched the elderly and the weak, Nüwa smelted together five-colored stones in order to patch up the azure sky, cut off the legs of the great turtle to set them up as the four pillars, killed the black dragon to provide relief for Ji Province, and piled up reeds and cinders to stop the surging waters. The azure sky was patched; the four pillars were set up; the surging waters were drained; the province of Ji was [made] tranquil; crafty vermin died off; blameless people [preserved their] lives. Knowing all of this, King Zhou nevertheless could not restrain himself from leaking lewd remarks before Nüwa’s image and desecrating her temple walls with lustful verse. Understandably put off, Nüwa sent the thousand-year-old vixen spirit known in Korean as the gumiho (“nine-tailed fox” (九尾狐 구미호)) in the form of Daji, the nineheaded pheasant spirit (九頭雉雞精 구두치계정) (familiar to Koreans, especially manhwa comic readers, as Hohuemi 호희미(胡喜 媚)), and the jade pipa spirit (琵琶精) (in Korea, Wang Gwi-in 왕귀인(王貴 人)) to bewitch the king and hasten

Professor Jocelyn Clark Professor, Pai Chai University KBLA Arts Ambassador jocelyn.clark@kbla.info


Korea Voices his downfall. It didn’t take long. Under the vixen’s spell, King Zhou soon began to neglect state affairs and proceed along the prescribed road to ruin. He ordered artists to compose lewd music and choreograph bawdy dances to satisfy the foxy Daji’s tastes. He threw elaborate parties featuring such unnatural wonders as a “pond of wine” and “forest of meat.” He encouraged guests to play cat and mouse in the nude to amuse his love. After all, what else could he do? When one of King Zhou’s other concubines, the daughter of Lord Jiu, protested, King Zhou was, of course, not to blame when he had her executed and her father ground into pieces and fed to his vassals. Among the king’s advisors was Duke Tai of Qi, whom Koreans know as Kang Tae Gong (강태공 姜太 公) and who is familiar to much of the rest of the world as Jiang Ziya ( 姜子牙 강자아). He comes up over and over again in Korean traditional song lyrics, from the “short song” danga repertoire to the pansori repertoire, e.g., in the Song of Chunhyang, Song of the Underwater Palace, and Song of Simcheong. In this last piece, we come across Kang Tae Gong through the lustful machinations of Sim Cheong’s father, Blindman Sim, when, in “Pounding Song” (방아타령), along his journey to China, he is invited by the village women to help them pound their mortar to produce sticky and spicy sauces for lunch. Written on all Korean mortars, apparently, are the words “Kang Tae Gong’s creation in the year of gyeongsin, in the month of gyeongsin on the day of gyeongsin during the hour of gyeongsin” (庚申年 庚申月 庚 申日 庚申時 姜太公 造作). These four overlapping gyeongsin carry forward the auspicious moment at which Kang Tae Gong used all of his strength to overwhelm the hardwood spirit (木神 (목신) to make a wooden mortar. Bang-a-yo!

But Jiang (we’re back in China now—it’s only Kang in Korean) is most famous as a strategist—for his patience, his ability to see the big picture and play the long game. A thousand years before the birth of Christ, Jiang served the Shang Dynasty for 20 years, until King Zhou’s erratic behavior made it impossible for him to continue. Feigning madness, he escaped the court, vowing to return one day and overthrow the king. The seemingly deranged Jiang bided his time on a tributary of the Wei River, fishing with an unbaited, unbarbed, and unbent “fish hook” that he dangled three feet above the water. For obvious reasons he never caught a fish. By the time Jiang was 72 years old, things at the Shang court had begun to change. Hearing word that Zhou’s wise advisor Jiang could now be found teasing the fish on the Wei, King Wen (周文王), the father of the first king of the future Zhou Dynasty (1046 BC-256 BC) (Confucius’ favorite dynasty and king), came looking for such a worthy man as Jiang to serve him. Asked what he was actually doing dangling his straight “hook” in the air, Jiang replied, “There is no need to rust a bent hook” (or something like that). “Those who really wish to get on the hook will of their own accord.” King Wen of Zhou did exactly that, inviting Jiang Ziya into his coach, taking him to court, and appointing him prime minister. The eventual fall of the Shang, brought about by its successors’ strategy of withdrawal and patience—“waiting for the right moment”—is history. Those interested in the Art of War may enjoy reading Jiang Ziya’s Six Secret Teachings (육도 (병법)), in which he instructs, among other maxims, “never delight in small advantages or that is all you will achieve”; “the greatest gains result from benevolence and helping others achieve their aspirations for a better world”; “achieve victory with benevolence and wit, preferably without actually fighting”; and,

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Korea Voices presciently, “never attack an enemy when his morale is high.” Like Jiang, the Seven Sages of the Bamboo Grove, were refugees from one of the short, corrupt, aristocratic, feudal dynasties after the Han and before the Tang—the Jin Dynasty (265-420). A favorite story concerns the drunken chancellor LIU Ling, who liked to sit naked in his chamber to receive the public. When anyone had the audacity to be offended, LIU would announce, “I take Heaven and Earth for my pillars and roof! The rooms of my house are my pants and coat!” He would then challenge the hapless citizen: “What are you doing in my pants?” More famous than LIU, though, was the qin player and son-in-law to JI Kang, the leader of one of the main factions vying for power in the capital. Music has been deployed throughout history as a tool to legitimize government. When PARK Chung-hee came to power, among his first acts (less than a year after his ascension in 1962) was to implement the Japan-inspired UNESCO-adapted system of Intangible Cultural Assets to protect Korean culture and heritage. Designated asset #1 was the Jongmyo royal ancestral Confucian memorial ceremony music 종묘제례악 (宗廟祭禮樂). No. 5 was pansori. Through national music, the Japanese military school-educated PARK appeared to be declaring, “I am a deeply devoted Korean. Your lidless ears cannot deceive you.” Long ago on a continent far away, I had the opportunity to be the first (or so I was told) player of a nonwestern instrument to perform in the Nürnberg Opera House, along with my colleagues in the concert. Part of the “Opera Latenight” series featuring “voices of the voiceless ones,” my concert started at midnight, following the main act, the legendary Argentinian singer Mercedes Sosa (1935-2009), who sang “Lo que cambió ayer/ tendrá que cambiar mañana/ así como cambio yo/ en esta tierra lejana”

(“That which changed yesterday/ will have to change tomorrow/ just as I change/ in this foreign land”). Later, the opera house’s director showed me where Hitler used to sit and listen as Richard Wagner’s compositions reminded the nation of its ethnic exceptionalism. Twentieth-century composers would later eschew beauty on that stage and many others in Europe, believing there was no place for the sublime in such venues after all that had happened. More recently, in America, Sir Elton John (and by now, many others) refused the January White House gig, and in Korea, the geomungo player (Korea’s version of the Chinese qin) HEO Yunjeong refused to play at the National Gugak Center after censorship of production content and blacklists of artists by the PARK Geunhye administration were revealed. One of the exiled Seven Sages, JI Kang, in his “Refutation of ‘Residence Has Neither Auspicious nor Harmful Effect on the Maintenance of Life’” (難宅 無吉凶 攝生論), declared that he “would not enter a dangerous state, but steer clear of the troubles of disorderly government,” just as Confucius himself advised in his Analects: Be devoted to faithfulness and love learning; defend the good Way (道 도) until death . . . Do not enter a state poised in danger; do not remain in a state plunged in chaos . . . When the Way prevails in the world, appear; when it does not, hide. When the Way prevails in a state, to be poor and of low rank is shameful; when the Way does not prevail in a state, to be wealthy and of high rank is shameful. (from the Eno translation) Joining the other six sages in the Bamboo Grove in the Shanyang countryside in the years before returning to court (and his subsequent execution), JI played the qin—the same five (now seven) stringed zither that Confucius played—and wrote this about it:


Korea Voices For a thousand years . . . the trees of that species from which qin are built . . . wait for he who shall recognize their value; quietly, they repose, forever robust . . . [T]hose people who are not of a free and detached disposition cannot find enjoyment in qin music. Those who are not profound and serene cannot dwell with it. Those who are not broadminded cannot ungrudgingly give themselves to it. Those who are not of the utmost refinement cannot understand its deep significance. As Yuet Keung LO recalls in his chapter in Dao Companion to Daoist Philosophy, JI Kang, in “Qin fu” ( 琴賦) (“Rhapsody on the Zither”), complained that the Confucian view was ignorant about music ( 樂 악) because of its ignorance of the nature of sound (聲 성) and patterned notes (音 음) and narrow notion that music’s purpose was to transform people by moving them to tears or laughter. For JI Kang, the “virtue of the zither” was instead profound and quiet (음음) and unfathomable (buke ce 不可測 불가측)—not limited to its power to stimulate emotion. In another treatise, “Musical Sound Has in It Neither Joy nor Sorrow,” JI wrote of “soundless music” (無 聲之樂 무성지악)—what the Daoist text the Laozi calls the “sound that is barely audible” (聽之不聞曰 希 청지불문왈희). “Because it is soundless,” wisely notes Yuet Keung LO, “it can embrace all sounds.” By not playing the qin, asserts LO, ZHAO Wen (昭文) “captures the completeness of music in soundlessness. Soundless sound, then, is unencumbered by musical instruments or artificial meters.” As JI wrote, “Silent is the qin of harmony, which is perfect and profound. Like a clear breeze, it passes through the woods, clear and crisp (穆穆和, 至至 愔愔, 如彼清風, 泠焉經林).” At the American inauguration this January, many musicians will undoubtedly carried their instruments into “the pants” of the new regime and music will undoubtedly be heard. But so will

the “perfect and profound” silence of Elton John’s absent piano—which, like JI’s qin and HEO Yunjeong’s geomungo, will remain “reposing quietly, robust.” In most Korean songs—and in dan’ga (단가 短歌), or “short songs,” in particular—when a protagonist is faced with the absurdities of the world, the narrator will end with some version of the question, “What can we do but play?” (아니 놀지는 못하리라) or “Let’s try and play” (놀아 보세.) The dan’ga “A Bamboo Staff and Straw Shoes” ( 竹杖芒鞋죽장망혜) is unique in that, after mentioning the Four Hoary Old Men of Mt. Shang, the Seven Sages of the Bamboo Grove, and Jiang Ziya, it adds a Korean to the list of Chinese hermits: the blind (in all ways) father of the filial Miss Sim Cheong. The song then ends not with the usual levity but, rather, with advice that even Blindman Sim knows to take: “Having entered into these mountains, Blindman Sim, too, awaits his moment” (이 산중에 들어오신 심맹인도 또한 때를 기다리라). We learn only in another song that by waiting and managing to show up later at the right moment does Sim regain his eyesight, through the morality and love of his daughter and the benevolence of the Emperor of China to whom she finds herself married. The dan’ga reminds us that, as human history cycles through periods of tyranny and civility, we all may hope for vision. But, to receive it, we often must first allow the “clear and crisp” breeze to beckon us silently back into the woods to await the proper moment.

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The Korean Presidential Impeachment Process and the Korean Conglomerates As Korea took the plunge into its current presidential impeachment crisis, it became almost immediately certain that money would surface quickly as one of the salient elements in the overall unraveling of Ms. Park Geun Hye’s presidency. The reason for that certainty was simple: soon after the news broke that the President’s pal, Ms. Choi Soon Sil, had set up a couple of foundations for the alleged purpose of promoting Korean sports the word spread via the Korean press that a number of major chaebol groups, the Korean conglomerates, were suspected of having provided funding for these foundations. As a matter of course, who could possibly complain about the fact that the leading corporate entities in Korea were digging into their coffers and coughing up funds to enable Korean athletes who would receive support from these foundations so that they could hone their athletic skills and win more international medals for Korea in global competitions? Well, as it turned out, as the scandal broke it was reported that the President’s pal, Ms. Choi, who headed the two foundations under suspicion, was actually using the funds supplied by the chaebol to the foundations not for the stated purpose of promoting Korean athletics but rather was diverting funds out of the foundations to enable her and her family members to enjoy the perks of a rich and privileged lifestyle. That in turn cast suspicion on the contributions made by the chaebol and led many to suspect that rather than being ‘patriotic donations’ to the enhancement of Korean athletic progress, the contributions were really in effect disguised bribes. The Korean press hinted that the funds given by the chaebol were intended to ensure that in exchange for supporting President Park’s friend in her ambitions

to amass a large amount of money for her own private purposes, the contributing chaebol could expect compensation in the form of favors from the Park administration. When questioned by a parliamentary committee that was investigating the scandal however, each of the chaebol chiefs denied that there was any quid quo pro that they were expecting from the Korean government and that they have provided the funds out of support for what they thought was a quasi-government effort to promote Korean sports. In effect, they claimed that they saw their ‘donations’ as a means of demonstrating their patriotic devotion to enabling Korean athletes to win more medals in international competitions. Unfortunately for some of the chaebol, recent events seemed to suggest that perhaps other motivations might have played a role in their decision to provide funding to the two sports foundations. In Samsung Group’s case, a recent merger between two of the group’s companies, Samsung C&T and Cheil Industries, was thought by a number of analysts to have been prompted by the desire of the vice chairman, Mr. J. Y. Lee, to gain more personal control over the operations of the group rather than by any intention to enhance the operating efficiencies of the two companies in the merger. A number of foreign investors, including the US hedge fund Elliott Management, opposed the merger and claimed that it would in fact be detrimental to shareholders. One of the major shareholders just happened to be the Korean government’s National Pension Service, and it was claimed by critics when the presidential scandal broke

Hank Morris Argentarius hank@argentarius-group.com


Korea Voices that the NPS had voted in favor of the merger at the behest of the Blue House. In turn it was alleged that President Park was the source of the pressure as she sought to repay the favor done by J.Y. Lee when he had made the largest contribution of any of the chaebol to the sports foundations managed by President Park’s friend Ms. Choi. The parliamentary committee came up with no evidence to demonstrate that the favors done by J.Y. Lee and the other chaebol leaders were done in expectation of government favors to be paid at a later date, so for a time that aspect of the scandal dropped off the front pages. Then a tablet computer was turned over to the special prosecutor who is investigating the case. This tablet allegedly indicates that there were communications via email between Ms. Choi and some executives of the Samsung Group in regard to the merger of the Samsung companies. Two Samsung executives have been questioned extensively by the special prosecutor’s staff and it is now thought likely that they may be charged with bribery in connection with the scandal. If the accusations are limited to these two executives then J. Y. Lee’s tenure as the head of Samsung Group would not appear to be in danger yet. But it is still early in the investigation and the special prosecutor’s office has not revealed anything as yet about the contents of the email messages and what evidence that they may or may not indicate about possible illegal activities involving Samsung Group and its senior executives. It is too early to tell if J. Y. Lee himself will be questioned again about involvement in the donations, but it is thought be everyone involved that at the very least the Group’s contributions to the sports foundations could not have been made without his knowledge and approval. Once again, the current presidential scandal in Korea demonstrates that for many years there has been a close relationship between the heads of the chaebol and the leaders of the Korean government, both elected leaders and senior bureaucrats who are responsible for carrying out the plans and the intentions of the

elected leaders. That might not be a problem if the chaebol leaders were not involved in illegal activities in many cases in the past, and if the Korean presidents had not routinely granted full pardons to the chaebol leaders involved in wrongdoing that enabled them to evade the consequences of their crimes and to resume their activities as leaders of their business groups. But in fact a number of the current chaebol leaders have been convicted of crimes in recent years, including the heads of the Hyundai Motors Group and SK Group, and they have received pardons from the Korean presidential office. Currently, some of the opposition politicians, including Mr. Moon Jae In who is leading the polls as the politician most favored by the Korean public to become the next president, have been saying that reform of the chaebol must be a high priority for any new Korean administration. If that is true, then Korean and foreign investors as well as business customers and suppliers to the chaebol must be concerned about their relationships with the chaebol and their controlling shareholders, the families that have managed these groups for generations in some cases. These families may come under severe pressure to give up control over their groups in some cases, but it is very likely that they will go to extraordinary lengths to preserve and protect their privileged positions as managers of these groups. This could mean opportunities and challenges alike for foreign and Korean investors and for companies that have some business relationships with these groups. The Korean corporate governance standards have never been high enough to thwart the ambitions of the families that control the various chaebol groups, but the times may be about to change. Wise counterparts of the chaebol groups will have this changing situation in mind as they continue doing business or investing with these chaebols.

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When thinking about the future, why are we wrong so often? There is an enormous amount of value in being able to see the future. If we can see what is coming around the corner, we can make better decisions, prepare better, and get a jump on our competitors. Considering how much money there is to be made, and how much advantage to be gained by being able to see the future, you’d think we’d work harder on being better at it. The problem is that there isn’t much to practice. Predicting the future is more art than science. It requires a god’s eye view, encompassing all the data available, and we rarely have that. What are some of the mistakes we make when we think about the future? Why do we get blindsided? Why do we fail to see new products and opportunities before they are obvious to everyone else? The reasons we’re so blind are a mixture of both mental mistakes and lack of information. Reason 1: We think linearly. We think linearly but innovation doesn’t happen linearly. We think in terms of what we already know and extrapolate that knowledge forward into the future. That means we think in terms of improvements of what we already know: faster, better, cheaper, more reliable. Linear thinking is evolutionary thinking, not revolutionary thinking. It doesn’t involved imaging what we don’t already see being used around us. True innovation doesn’t happen linearly. It happens exponentially. Better results come not from incremental improvements, but from complete changes in paradigms. We go from the horse and carriage to the automobile, from the command line to the graphical user interface,

from audio tapes and CDs to MP3s. We go from analog to digital, from physical to intangible. Reason 2: Revolutions are emergent phenomena. Revolutions can’t be found when looked for. They can’t be extrapolated from existing products, use cases, and customer requests. They emerge on their own as a result of a variety of inputs and influences coming together. That means they are hard to predict unless we see all of the different parts and imagine the combinations ahead of time.

Rodney J. Johnson President, Erudite Risk Co-Founder, KBLA rodney.johnson@kbla.info rodney.johnson@kbla.info


Korea Voices

Emergent properties are found all over. The smell and taste of a freshly baked cake are emergent properties: they can’t be found through an examination of any one or more of the cake’s ingredients’ properties. Consciousness is an emergent property. It can’t be found in the physical brain. Autonomous vehicles are a revolution that came about not through improving anything related to existing automobile technology, but through the convergence of various technologies and influences that those concentrating on improving existing cars would never even have been interested in. People working outside of the auto industry, on their own problems, for their own reasons, all unintentionally and unknowingly, were creating the technology necessary to make an autonomous vehicle work. Reason 3: Something unrelated changes. Changes away from our industry or unrelated to the core technology we make use of suddenly make new things possible that were not possible just yesterday. While no

innovation was done by us, or no improvements or changes focused on our area of interest were made, changes elsewhere now put us at risk. Often, changes to completely unrelated technologies lead to widespread innovation as the new technology is applied in different industries. Any technological advancement may have applications in your industry, therefore, change and revolution can come from anywhere. That makes change exceedingly hard to predict. The rise of social media, pervasive web tracking, and big data techniques have led to a variety of solutions to problems that couldn’t be solved before because we just didn’t have enough data. Social media and the web were not invented in order to create and collect data but it turns out they both do those functions incredibly well. We now have more data than we ever could have dreamed of and are, therefore, able to apply that data everywhere from psychology to artificial intelligence to economics.

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Reason 4: We have mental sacred cows. People have trouble letting go of what they are familiar with. One of the main reasons is because ideas we are used to are successful ideas; they have always worked for us. They are proven. Why would we want to kill them off or seek alternatives? The inability to see the problems successful ideas don’t solve is why we don’t search for better ones. The ideas work well enough for us and we fall in love with them. Falling in love with ideas is potentially fatal, because love is blind. Reason 5: Revolutionary technology is usually not pretty in the beginning. New things have kinks to be worked out. New things have bugs. New things don’t quite fit into our old ecosystems. That leaves us squinting at them and wondering where the attraction is. So, we dismiss them as not important, not relevant, or not useful. We believe they will never make a real impact on our industry, our company, and our customers. But new things don’t always stay infants; they grow up, they become mature, strong, and powerful. By that time, it is too late to see that these new things are going to hurt us. By that time, they are often wielded by industry newcomers, come to eat our lunch. The Next New Thing: Chatbots So it is with chatbots - the biggest thing you’ve never heard of. Chatbots are an application of a variety of technologies that are converging in a way that is going to be supremely disruptive to all businesses, B2C or B2B. Chatbots are a simmering revolution that is expected to hit a rolling boil in 2017. Chatbots utilize Natural Language Processing to interact with users in a natural and largely free-flowing way. They can be deployed in messaging apps, mobile devices, IoT devices,

cars, and pretty much anywhere else. Since these artificially intelligence digital assistants channel requests of all kinds through themselves, users don’t use other channels. Users won’t need any other channels. That’s a horrifying thought to most everyone involved with attracting customers, harnessing attention, and creating engagement, which is basically everyone in business. At 2017’s first KBLA Technology & Innovation Forum, on March 17, I’ll be talking about chatbots, web bots, personal digital assistants, and what they all mean to companies and their customers. I hope you can join us for this opportunity to learn about a real revolution coming right around the corner. KBLA Members may register on the KBLA website, or send an email to admin@kbla.info. I hope to see you there.


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About the KBLA Korea Business Leaders Alliance Our mission is to serve leaders in Korea, primarily business leaders, but also academics and arts leaders. We bring peer leaders together, help them build relationships, expose them to new ideas and best practices, give them opportunities to interact, publish, demonstrate expertise, and just spend time getting to know one another. We provide information tools and channels for them to interact online and to be informed.

The KBLA also serves business leaders around the world who have a stake in the Korean business environment through our business intelligence reporting service: Korea Intelligence Package.

Partners of the KBLA


About the KBLA Value Chain Advertisers Index EDITOR IN CHIEF Rodney J. Johnson

Cushman & Wakefield www.cushmanwakefield.com

MANAGING EDITORS Alixe Trang

Korea International School www.kis.or.kr

CONTENT EDITOR Kyle Johnson

Seoul Foreign School www.seoulforeign.org

CONTRIBUTORS Philippe Shin Matthew Weigand Kyle Johnson Jung Won Park J. James Kim John J. Lee, Han Minjeong Bryan Hopkins Jocelyn Clark Hank Morris Arthur Sabalionis

Lee & Ko www.leeko.com

ADVERTISING Julia Kim (김주희) PUBLIC RELATIONS Jennifer Kim (김잔디)

Value Chain is published monthly by the Korea Business Leaders Alliance on the ground, in Seoul, Korea. Value Chain is a digital-only publication available in PDF and online forms. For advertising and distribution inquiries contact us at admin@kbla.info.

United Airlines www.united.com KEB Hana Bank hanafn.com/main.do Top Cloud http://www.topcloudcorp.co.kr/ Asian Tigers Mobility www.asiantigers-korea.com Agility Korea www.agility.com Grand Hyatt Seoul http://seoul.grand.hyatt.com/en/hotel/home.html Taejon Christian International School http://www.tcis.or.kr/ Erudite Risk www.eruditerisk.com McKinney Consulting www.mckinneyconsulting.com

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Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away. -- Antoine de SaintExupĂŠry

Value Chain, February 2017  

The Monthly Magazine of the Korea Business Leaders Alliance